Mali ECONOMIC UPDATE Special Chapter Strengthening Financial Resilience of Pastoralists to Drought 2023 MALI ECONOMIC UPDATE Special Chapter: Strengthening Financial Resilience of Pastoralists to Drought April 2023 © 2023 International Bank for Reconstruction and Development / The World Bank Some rights reserved. This work is a product of the staff of The World Bank with external contributions. The findings, interpre- tations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judg- ment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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TABLE OF CONTENTS Abbreviations, Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix 1. Economic and Poverty Developments and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Recent economic and poverty developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Economic and poverty outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Spotlight: Sahel Country Climate and Development Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2. Strengthening Financial Resilience of Pastoralists to Drought . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Why financial protection from drought shocks is relevant for pastoralists in Mali . . . . . . . . . . . . . . . . . . . . . . .19 How index-based drought risk financing for pastoralists works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Impacts and lessons learned from Kenya and Ethiopia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Key findings of a feasibility assessment for Mali . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Policy options and next steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 3. Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Selected economic indicators for Mali, 2019–2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Note on Mali’s 2023 Budget Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Microsimulation model to account for sectoral growth and food/non-food inflation . . . . . . . . . . . . . . . . . . . . 36 Modeling of climate change impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 List of Figures Figure 1.1 Supply Side Contributions to GDP Growth Showed Resilience Despite Pressure from Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Figure 1.2 Public Investment Contributed Negatively to GDP Growth in 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Figure 1.3 Sanctions Hindered the Recovering Industrial Output and Sales to Return to 2016–18 Levels after the Pandemic Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 1.4 Food Inflation in Mali Exceeded the WAEMU Average in 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Figure 1.5 Monthly Inflation Peaked in August 2022, Mainly Driven by Food Inflation . . . . . . . . . . . . . . . . . . . .4 Figure 1.6 Reduced Yet Elevated Expenditures Brought the Fiscal Deficit to 5 Percent of GDP . . . . . . . . . . . .6 Figure 1.7 The Share of Domestic Debt Further Increased as Public Debt Reached a New High . . . . . . . . . . 6 Figure 1.8 Total Revenue and Grants Were Impacted by Tightened Donor Support and the ECOWAS Trade Embargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Figure 1.9 While the Wage Bill Continued to Rise, Capital Spending Has Reduced Considerably in 2022 . . 7 Figure 1.10 Mali’s Revenues Historically Exceeded the WAEMU Average and Continued to do so in 2022 . . 7 Figure 1.11 Government Spending Converged to the Increasing WAEMU Average in 2022 . . . . . . . . . . . . . . . 7 Figure 1.12 The Current Account Balance Improved as the ECOWAS Trade Embargo Reduced Imports . . . .8 iii Figure 1.13 The Terms of Trade Deteriorated as Global Commodity Prices Climbed . . . . . . . . . . . . . . . . . . . . . .8 Figure 1.14 The REER Remained Relatively Stable Compared to the Nominal Exchange Rate’s Upturn . . . . . 9 Figure 1.15 The Sectoral Distribution of Loans in the Banking Sector Did Not Change in 2022 . . . . . . . . . . . . 9 Figure 1.16 The Increase in Poverty Rate was Driven by a High CPI and a Decline in Real GDP per Capita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 1.17 The Poorer Population Was Exposed More Strongly to Negative Mean Growth . . . . . . . . . . . . . . .10 Figure 1.18 Services Offer Most of the Employment to the Highest Income Classes . . . . . . . . . . . . . . . . . . . . .11 Figure 1.19 Agriculture Generates More than Half of the Income, Only in the 5 Poorest Deciles . . . . . . . . . . .11 Figure 1.20 Given Higher Consumption, the Wealthiest Households Were Most Impacted by Rising Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Figure 1.21 Poorer Households Have Experienced Stronger Negative Growth Rates and Are Projected to Benefit Less from Future Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 1.22 Russia’s Invasion of Ukraine at end-February 2022 Marks the Turning Point for Government Bond Yields in WAEMU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Figure 1.23 The Share of Domestic Gross Financing Needs Is the Highest in Mali among WAEMU Peers 13 Figure 1.24 Mali Could Lose between 6.4 and 10.7 Percent of GDP by 2050 . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Figure 1.25 High Annual Variability in Climate Shocks Increases Volatility of Growth . . . . . . . . . . . . . . . . . . . . .16 Figure 1.26 Lower Labor Productivity Due to Heat Stress and Damages to Roads and Bridges Drive GDP Losses under a Wet and Optimistic Climate Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Figure 1.27 Lower Labor Productivity Due to Heat Stress and Lower Livestock Yields Drive GDP Losses under a Dry and Pessimistic Climate Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 2.1 Droughts Have Affected Most Malians over the Past Fifty Years . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Figure 2.2 A Cost-Benefit Snapshot of IBDRFI for Small-Scale Agricultural Producer . . . . . . . . . . . . . . . . . . . 22 Figure 2.3 Technical Feasibility of IBLI Design in Mali . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 3.1 Key Fiscal Indicators in the Revised Finance Law 2022 and the Finance Law 2023 . . . . . . . . . . .37 Figure 3.2 Impact on Annual GDP of Combined Effects of Climate Change Shocks from Six Impact Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 List of Tables Table E.1 Policy Options to Strengthen Macro-Fiscal Sustainability and Financial Resilience to Climate Shocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv Table 2.1 IBDRFI Solutions Implemented under KLIP and their Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Table 3.1 Key Fiscal Indicators in the Revised Budget Law 2022 and the Budget Law of 2023 . . . . . . . . . .37 Table 3.2 Functional Composition of Total Budgeted Spending (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Table 3.3 Climate Scenarios Modeled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 List of Boxes Box 1.1 Impact Channels – Modeling the Link between Climate Change and the Economy . . . . . . . . . . . 15 Box 2.1  Satellite Normalized Difference Vegetation Index (NDVI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Box 2.2 Index Insurance at Different Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 Box 3.1 Main Takeaways of the 2023 Budget Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Box 3.2 Impact Channel and Adaptation Modeling Details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 iv ABBREVIATIONS, ACRONYMS AGHRYMET Centre Régionale de Formation et GDP Gross Domestic Product d’Application en Agrométéorologie et GFN Gross Financing Needs Hydrologie Opérationnelle GHG Greenhouse Gas Emissions BCEAO Central Bank of West African States G5 Group of Five (G5 Sahel countries) CAD Current Account Deficit IBDRFI Index-based Disaster Risk Financing CCDR Country Climate and Development Instruments Report IBLI Index-based Livestock Insurance CCKP Climate Change Knowledge Portal IMF International Monetary Fund CEMAC Economic and Monetary Community IPCC International Panel on Climate Change of Central African States IPSS Infrastructure Planning Support CFAF Franc de la communauté financière System en Afrique (Franc of the Financial KLIP Kenya Livestock Insurance Program Community of Africa) MFI Multilateral Finance Institution CIMA Commission Régionale de Contrôle MFMod The World Bank’s Macro-Fiscal Model des Assurances NDVI Normalized Difference Vegetation CMDT Compagnie Malienne pour le Index Développement des Textiles NGO Non-governmental Organization CMIP Coupled Model Intercomparison NPL Non-performing Loan Project PAGT Plan d’action 2022–2024 du CPI Consumer Price Index gouvernement de la Transition CREDD Cadre Stratégique pour la Relance PPP Purchasing Power Parity Économique et le Développement RCP Representative Concentration Durable Pathway DRFI Disaster Risk Financing and Insurance REER Real Effective Exchange Rate DRIVE De-risking, Inclusion and Value SDR Special Drawing Rights Enhancement of Pastoral Economies SIIPE Satellite Index Insurance for in the Horn of Africa Pastoralists in Ethiopia DSA Debt Sustainability Analysis SOE State-owned Enterprise ECF Extended Credit Facility SSP Shared Socioeconomic Pathway ECOWAS Economic Community of West African VAT Value Added Tax States WAEMU West African Economic and Monetary FDI Foreign Direct Investment Union GCM General Circulation Model WFP World Food Program v ACKNOWLEDGEMENTS The Mali Economic Update was led and coordinated The authors are grateful to the peer reviewers, by Daniel Pajank. Chapter 1, covering macroeco- Raju Singh, Nga Thi Viet Nguyen, Elly Baroudy and nomic and poverty developments, was prepared by Christian Bodewig, for their constructive and valuable Xun Yan, Eliakim Kakpo, and Yele Maweki Batana, with comments. The team would like to also extend sincere inputs on the Sahel Country Climate and Development thanks to the IEc team of Brent Boehlert, Kenneth Report (CCDR) Spotlight provided by Yue Man Lee and Strzepek, Diego Castillo, and Silvia Colombo who Michael Evers. Chapter 2, covering strengthening finan- led the impact channel and adaptation modeling, on cial resilience to drought, was prepared by John Luke which the CCDR Spotlight relies, and to ILRI for their Plevin, Qhelile Ndlovu, and Rishi Raithatha, with con- significant contributions to Chapter 2’s underlying tributions from Thibault Bouessel du Bourg and Felix reports. Lung. The report was prepared under the overall guid- Maude Jean-Baptiste and Theresa Bampoe ance of Clara Ana De Sousa (Country Director), Theo supported the preparation and publication of the Thomas (Practice Manager), Fulbert Tchana Tchana report, and Yannik Strittmatter provided invaluable for- (Program Leader) and Yue Man Lee (Lead Economist). matting assistance. vii EXECUTIVE SUMMARY This 2023 Economic Update for Mali is articu- To counter inflation across WAEMU coun- lated in two chapters, plus a spotlight. The first tries, the Central Bank of West African States chapter presents the economic and poverty develop- (BCEAO) raised policy interest rates by a cumu- ments observed in the country in 2022 as well as the lative 75 basis points in 2022 (to 2.75 percent for outlook from 2023 to 2025. This chapter is followed liquidity calls and 4.75 percent for the marginal lend- by a summary of the macroeconomic-poverty impact ing facility). BCEAO’s international reserves dropped analyses for Mali in the World Bank Sahel Country Cli- to 4.4 months of imports at end-2022 from 5.8 months mate and Development Report (2022). Chapter Two at end-2021. At the same time, inflation in the WAEMU offers a deep dive on the potential from using disas- region rose sharply to 7 percent (y/y) in December ter risk financing and insurance instruments to reduce 2022, driven by food and energy costs. To bring infla- adverse socio-economic impacts of climate shocks. tion back to its target range of 1 to 3 percent and While the analysis is about the establishment of such anchor inflation expectations, the BCEAO raised instruments to protect a key sector such as pasto- key policy rates by 25 bps in June, September, and ralism, which engages around 80 percent of Mali’s December respectively. households, their use can be extended to other sec- The fiscal deficit stabilized at an elevated tors such as agriculture. level of 5 percent of GDP in 2022. After declining GDP growth has been resilient in the face of due to the sanctions, tax revenues recovered during ECOWAS sanctions, high food inflation, and para- the second half of 2022, and increased by 1 percent site infestations affecting cotton production. The on the year despite fuel tax expenditures (foregone Bank estimates that the growth reached 1.8 percent fuel excise and oil customs revenue at 1.9 percent (National Institute of Statistics’ estimate of 3.7 per- of GDP). Meanwhile, wages (8 percent of GDP) and cent. Real GDP growth for 2022 will be updated as security (6.2 percent of GDP) spending increased in new data, particularly on agricultural output, become 2022, crowding out public investment (4.3 percent of available) in 2022. Based on this estimate and the GDP). With limited access to external financing, the population growth, the Bank estimates that per capita fiscal deficit was mainly financed through expensive income fell by 0.9 percent, leading to an increase in domestic borrowing on the regional market. poverty incidence, while delaying fiscal consolidation. Domestic revenue mobilization is hin- This resilient growth was underpinned by the recovery dered by costly and inefficient tax expenditures. of food agriculture from exceptionally low 2021 levels VAT exemptions on some products go beyond those as well as the resilience of gold mining and trade and authorized under WAEMU directives. Other costly tax telecommunications. In contrast, export agriculture – expenditures include ad-hoc VAT exemptions per proj- cotton production – declined by nearly 30 percent, ect under establishment agreements or exemptions reflecting parasite infestations and the combined from excise taxes (TIPP) on petroleum imports in the effects of the ECOWAS trade embargo and Russia’s mining sector. Rationalizing these tax expenditures invasion of Ukraine on fertilizer costs and availability. will help boost domestic revenue while supporting Annual average inflation increased to 9.7 economic efficiency. percent in 2022 (3.9 percent in 2021), mainly Total public debt accumulation accelerated driven by food inflation, which accelerated to 13.9 in 2022 due to the enlarged financing needs. percent as a result of persistent insecurity forcing the At end-2022, Mali’s total stock of public debt is esti- displacement of farmers, the ECOWAS sanctions dis- mated to have increased to 55.2 percent of GDP from rupting trade networks, and elevated global food prices. 52 percent of GDP at end-2021. External public debt ix decreased slightly to 28.5 percent of GDP at end- yields for 6–12-month T-bills and 5-year T-bonds for 2022 from 29.3 percent of GDP at end-2021 following WAEMU countries. In the past couple of months, the reduction of new external financing, while domes- several WAEMU countries, including Mali, have had tic debt reached 26.7 percent of GDP in 2022. uncovered auction experiences. As of end March Domestic debt has risen sharply in recent 2023, Mali has so far raised CFAF 116.3 billion years and is fueling debt vulnerabilities with roll- (8.3 percent of annual target) on the regional market. over risks. Domestic debt rose by 9.2 percentage The liquidity and rollover risks and subsequent public points of GDP over 2020–22, which has led to increas- finance difficulties could weigh on the wider economy ing annual debt servicing costs (rose by 0.5 percent- and the society, through reduced social spending and age points of GDP over 2020–22). Given the limited investment and potentially a further built-up of arrears. external financing options over the medium-term, Mali The Sahel region is among the world’s most will continue to rely predominantly on domestic financ- vulnerable to climate change while having some ing from the regional debt market in 2023–24. The of the highest poverty rates. According to the Inter- government adopted in 2022 an ambitious program national Panel on Climate Change (IPCC), most cli- of domestic issuances with longer maturity, which will mate scenarios show that temperatures in the Sahel require strong communication efforts with the market. will rise by at least 2°C between 2021 and 2040, while Growth is expected to rebound to 4 percent rainfall patterns are projected to become more irreg- in 2023, and average 4.5 percent over 2024–25, ular. The Sahel CCDR (covering Burkina Faso, Chad, supported by a continued recovery of agriculture Mali, Mauritania, and Niger) projects that by 2050 the and services. GDP growth is projected to remain 5 countries’ annual GDP would be reduced by 7 to lower than the country’s potential (5 percent) reflect- 12 percent with 13.5 million additional poor due to cli- ing the uncertainty around the political transition, mate change-related shocks if urgent investments in insecurity, and the reduced fiscal space for growth- climate adaptation are not taken. Mali’s annual GDP enhancing public investments. Despite these bottle- could be reduced by 10.7 percent due to climate necks, export agriculture (cotton) and services, partic- change by 2050. ularly trade and hospitality, are expected to rebound Mali has already been severely exposed to in 2023 and support growth in the medium-term. recurrent droughts, floods, and locust invasions Mali will need to strengthen domestic rev- with major economic and social impacts. Between enue mobilization and manage spending pres- 1970 and 2020, Mali experienced at least 40 major sures to create fiscal space and support fis- shocks. Drought for instance, is estimated to have cal sustainability. The fiscal deficit is projected to affected about 400,000 people per year and reduced stabilize at 4.9 percent in 2023 with tax administra- crop-related agricultural income by US$9.5 million tion measures improving revenue but could further annually. Locust infestations in 1985–88 and 2003– increase if projected external grants (0.4 percent of 05 destroyed millions of hectares of crops, however, GDP) do not materialize. The fiscal deficit is expected the impact on people was not recorded. to gradually converge to the WAEMU ceiling of 3 per- Recurrent droughts have contributed to cent, while public debt will increase to 55.9 percent by changes in vegetation characteristics and com- 2025 before gradually declining. position in Mali. According to a technical feasibil- This outlook is subject to multiple down- ity assessment, these changes are caused by low, side risks, in particular related to the timeline of erratic, and variable rainfall with widespread inter- the political transition, insecurity, tighter financial annual negative precipitation anomalies. This is par- market conditions, and climate shocks. A signifi- ticularly prevalent in the north of the country within cant risk that has emerged over the past 12 months the Sahara and Sahelian bioclimatic regions. In recent is the rising cost of financing on the regional market years, drought coupled with overgrazing, has led to given Mali’s high domestic gross financing needs. losses in savanna structure, vegetation cover, and Tighter monetary policy has translated into higher productivity. x 2023 MALI ECONOMIC UPDATE Whilst some risk management and financ- and budgetary tools (i.e., a dedicated reserve fund or ing initiatives exist which focus on crop farmers, contingency budget). pastoralists and agro-pastoralists are an often- Around 15 percent of Mali’s land area overlooked group which are acutely vulnera- is fully suitable for Index-Based Disaster Risk ble to the impact of climate shocks. Pastoralists Financing and Insurance (IBDRFI) for pastoral- are typically found in the arid and semi-arid zones ists, while another 10 percent might be suitable in the north, where rainfall is less than 400 mm per with further analysis. Collectively, these areas host year. Agro-pastoralists are concentrated in the south, 63 percent of the national livestock herd. The central where rainfall is higher than 400 mm per year. Pasto- part of the country is characterized by fully suitable ralists (and agro-pastoralists) are among the poorest units. “Rangeland review” areas, where both arable and most vulnerable parts of the population. Their vul- farming and livestock production co-exist, are mainly nerability arises from overexposure and a lower ability located in the central western regions, and would to cope and recover from the shocks they experience. require further evaluation for suitability. There are also Disaster risk financing and insurance “forage review” areas, mainly located in the north, for (DRFI) provides mechanisms that aim to reduce which further analysis is needed to assess the scope adverse socio-economic impacts of climate of grazing areas for livestock production. Both range- shocks. These mechanisms can provide timely and land and forage areas meet all the technical criteria targeted finance in response to or in expectation of for DRFI but need to be further reviewed with local a shock. DRFI approaches include market-based stakeholders to confirm their suitability for extensive instruments (e.g., insurance schemes, catastrophe livestock herding. This is because the land use in the bonds and swaps), contingent financing (e.g., credit) related regions is mixed and includes crops. TABLE E.1   Policy Options to Strengthen Macro-Fiscal Sustainability and Financial Resilience to Climate Shocks Policy Objectives Policy Options (with estimated costs and gains) Feasible to implement in the short-term (1 year) Enhancing effective and targeted social spending • Increase the coverage and targeting mechanism of the social programs, particularly the program of emergency cash transfers to the most vulnerable introduced in the context of the pandemic, to provide income to the poorest households. The government should continue identifying eligible beneficiaries in remote rural areas. Mainstreaming disaster-risk financing in Mali’s • Conduct a stakeholder dialogue to define the policy priorities and objectives of IBDRFI. This dialogue could be anchored to the development agenda 2021-25 National Plan for Drought and involve multiple ministries, insurers, regulators, pastoral associations, international organizations, and relevant development institutions Improving management of the wage bill • Consider, taking into account the social context, examining wages, bonuses, and the compensation and wage setting policy in the civil service to strengthen efficiency and equity of the wage bill. This could pave the way for a harmonized framework, while reducing the scope of special categories (i.e., bonuses and special advantages). Important to implement in the medium term (2 to 5 years) Increasing domestic revenue mobilization • Reduce VAT and customs duty exemptions under the Investment Code and Establishment Agreements outside the mining sector. This could provide up to 0.38 percent of GDP in additional tax revenues • Phase out the petroleum excise (TIPP) exemption on imports in the mining sector as part of a general review of the taxation of this sector. This could generate up to 0.19 percent of GDP of additional tax revenues Strengthening public debt management • Establish a structural program for the exchange of securities close to their final maturity for securities with longer maturities. This could also help strengthen communication with market participants. Enhancing stakeholder awareness of Index-based • Carry out continuous capacity building and awareness raising to improve insurance companies’ knowledge, understanding, disaster risk financing and experience of crop and livestock index insurance. This could involve both the private and public sector as well as institutions involved in providing agro-meteorological, extension, and emergency response services. As IBDRFI would be a new solution, public and private sector capacity building could cover the mechanics of insurance, roles and responsibilities, product design, and pricing EXECUTIVE SUMMARY xi 1 ECONOMIC AND POVERTY DEVELOPMENTS AND OUTLOOK1 While the economy has been dominated by low in remote areas, this has increasingly disrupted ser- productivity sectors for a long time, Mali is fac- vice delivery. Political instability has also become a sig- ing new challenges to switch to higher and more nificant risk factor to growth as evidenced by the six- inclusive growth. month Economic Community of West African States (ECOWAS) sanctions in 2022 in response to the gov- Mali’s economy experienced little structural ernment’s decision to delay elections initially sched- change over the last three decades. Agriculture and uled for February 2022. The sanctions were lifted low-productivity services dominate the economic and in July 2022, only after the transitional government employment landscape, while manufacturing remains limited and concentrated in agro-industries and cot- 1 This report covers economic and poverty developments ton ginning, Exports are dominated by gold and cotton, in Mali. For global trends, forecasts, and analysis of exposing the economy to commodity-price and climatic major developments impacting the global and regional shocks. GDP growth per capita stagnated during the economy, refer to the World Bank’s Global Economic last decade limiting progress in poverty reduction while Prospects report. The Commodity Markets Outlook offers analysis for major commodity groups, and Africa’s human development indicators show mixed results. Pulse, a publication of the Office of the Chief Economist Insecurity and a weakened social contract in the World Bank Africa Region analyses the short-term have emerged as key bottlenecks for inclusive economic prospects for the continent and current devel- growth. In combination with the absence of the State opment challenges. 1 agreed with ECOWAS on a timetable leading up to a political climate and the normalization of mining foreign series of elections over the period 2023–2024. direct investments from exceptionally high 2021 levels. Private consumption experienced a timid growth con- sistent with the recovery of food agriculture and despite Recent economic and poverty the frictions caused by the ECOWAS financial sanc- developments tions on remittance inflows. In 2022, GDP growth slowed to 1.8 percent and Low growth and high inflation in 2022 are linked inflation rose to an average of 9.7 percent due to persistent insecurity and limited domestic to limited investment and higher global food and agricultural supply, which disrupted agro-food energy prices. processing activities. GDP growth has been resilient in 2022 despite Food agriculture recovered in 2022, as a result of multiple shocks including ECOWAS sanctions2, favorable weather conditions, in contrast to cot- high food inflation, and parasite infestations ton production. The upturn is also linked to relative affecting cotton production. Real GDP growth is security improvements in the Central regions but was estimated to have reached 1.8 percent in 2022. The limited by reduced and more costly access to fertiliz- subdued performance was mainly supported by the ers in a context of global supply constraints. Remote recovery of food agriculture (7.6 percent growth) from sensing data between June and August 20223 indi- exceptionally low 2021 levels as well as the resilience cate that rainfall was adequate for crop development of gold mining (4.2 percent growth). Meanwhile, some in the major growing regions in southern and west- service sectors i.e., telecommunications, trade, and ern parts. As a result, cereal output is projected to public services, showed signs of resilience despite increase from 8.8 million tons in 2021 to 9.5 million the sanction-induced disruptions to trade flows tons in 2022, driven by rice and millet productions. (Figure 1.1). In contrast, export agriculture – cotton In contrast, export agriculture—cotton production—is production – declined by nearly 30 percent in 2022. projected to have contracted by 29 percent in 2022. Inflation increased to 10 percent in 2022, mainly The decline of the country’s second largest export driven by food inflation which accelerated to 13.9 per- is related to several factors including: (i) lower yields cent as a result of insecurity forcing the displacement linked to insect infestation affecting 175,000 hectares of farmers, the ECOWAS sanctions disrupting trade of crops; (ii) limited access to fertilizers due to global networks, and elevated global food prices due to the reverberations of the war in Ukraine. The surging 2 ECOWAS and the West African Economic and Monetary food costs has also exacerbated food insecurity chal- Union (WAEMU) imposed economic and financial sanc- lenges with 1,8 million food insecure households esti- tions on Mali between January 9, 2022, and July 3, 2022. mated during the lean season (June-August) of 2022 The sanction measures, triggered by the postponement (CILSS, 2022) end 2022. of general elections, included: (i) the suspension of com- mercial transactions with the rest of ECOWAS except for Public investment declined due to lim- essential goods, (ii) the suspension of financial trans- ited budget resources while private consump- actions with the region, including access to the money tion growth decelerated in 2022 (Figure 1.2). The and capital market, (iii) the freeze of public assets being retrenchment of public investment is linked to several held at the Central Bank and regional commercial banks factors: (i) limited fiscal resources as a result of the trade (BCEAO), and (iv) the suspension of regional financial embargo, (ii) quasi-fiscal measures to contain food and assistance, mainly from the ECOWAS Bank for Invest- ment and Development (EBID) and West African Devel- energy inflation in the wake of the war in Ukraine, and opment Bank (WADB). The government was denied (iii) reduced donor support affecting externally funded access to the regional bond market and to its assets at investment spending. Meanwhile, the decline of private the regional Central Bank (BCEAO). investment is related to persistent uncertainty over the 3 FAO GIEWS Mali Country Brief, October 2022. 2 2023 MALI ECONOMIC UPDATE FIGURE 1.1     Supply Side Contributions to GDP FIGURE 1.2   Public Investment Contributed Growth Showed Resilience Despite Negatively to GDP Growth in 2022 Pressure from Sanctions Demand side contribution to growth Supply side contribution to growth 15 8 10 6 4 5 2 0 0 –5 –2 –10 –4 2015 2016 2017 2018 2019 2020 2021 2022e 2023p 2024p 2025p 2015 2016 2017 2018 2019 2020 2021 2022e 2023p 2024p 2025p Private consumption Government consumption Public investment Agriculture Industry Services Private investment Net export Change in inventories Net Taxes on Production Growth Growth Source: INSTAT, BCEAO, WBG and staff calculations. Source: INSTAT, BCEAO, WBG and staff calculations. supply bottlenecks; and (iii) increased fertilizer costs telecommunication and public sector. The contin- in relation to the war in Ukraine. ued increase of the public wage bill and new spend- Industrial activity was resilient in 2022 sup- ing to offset the socioeconomic impacts of food and ported by the 2021 successful cotton campaign energy inflation contributed to the strong public sec- and a resilient gold mining sector. The exception- tor performance. A few other service sectors showed ally high cotton production of 2021 led to a recov- signs of resilience including trade and transportation ery in 2022 of cotton ginning, which relies heavily on which benefited from the adoption of alternative trad- domestic cotton input. At the same time, limited 2021 ing corridors to circumvent the impacts of the embargo. food agricultural production, combined with disrup- In contrast, private and financial services particularly tions caused by the ECOWAS trade sanctions to sup- in tourism and hospitality were severely affected by ply networks in the region and global bottlenecks, the closure of air and land borders between Mali and created significant shortages of critical food com- ECOWAS member-countries (except with Guinea), modity inputs. This limited the output of agro-food leading to several airlines suspending their connec- processing. Despite the ECOWAS sanctions, indus- tion to Bamako. For airlines that still served the cap- trial gold mining is estimated to have also rebounded ital, the sanctions led to costly rerouting of traditional (4.7 percent growth) to 66 tons in 2022, as the min- corridors. ing sector provisioned adequate stocks of inputs prior to the sanctions and few new mines have come Despite lower tax revenue and increased security onstream. Artisanal mining is estimated to have stabi- and wage spending, the fiscal deficit stabilized at lized around 6 tons in 2022 despite insecurity in the an elevated level of 5 percent of GDP due to signif- South while construction sector was hampered by icant investment cuts. the impacts of the trade embargo on cement costs and availability. Despite increased digitalization efforts in tax The service sector was resilient to the administration, total revenue and grants declined ECOWAS embargo in 2022, supported by in 2022 due to the ECOWAS embargo on trade, ECONOMIC AND POVERTY DEVELOPMENTS AND OUTLOOK 3 FIGURE 1.3   Sanctions Hindered the Recovering FIGURE 1.4     Food Inflation in Mali Exceeded the Industrial Output and Sales to Return to WAEMU Average in 2022 2016–18 Levels after the Pandemic Low Mali v. WAEMU: food inflation Quarterly industrial output and sales index (percentage, y/y) 30 30 25 20 20 15 10 5 10 0 –5 0 –10 –15 –20 –10 1Q-2016 2Q-2016 3Q-2016 4Q-2016 1Q-2017 2Q-2017 3Q-2017 4Q-2017 1Q-2018 2Q-2018 3Q-2018 4Q-2018 1Q-2019 2Q-2019 3Q-2019 4Q-2019 1Q-2020 2Q-2020 3Q-2020 4Q-2020 1Q-2021 2Q-2021 3Q-2021 4Q-2021 1Q-2022 2Q-2022 3Q-2022 2018m1 2019m1 2020m1 2021m1 2022m1 2023m1 Date Industrial Production Retail Sales Lower Bound/Upper bound WAEMU regional mean Mali Source: INSTAT, BCEAO, WBG and staff calculations. Source: INSTAT, BCEAO, WBG and staff calculations. Note(s): 1/ Four-month moving average (4QMA) of quarterly growth (y/y) of industrial output and Note(s): 1/ Four-month moving average (4QMA) of quarterly growth (y/y) of industrial output and sales. Both series are indexed (2013=100). sales. Both series are indexed (2013=100). FIGURE 1.5     Monthly Inflation Peaked in August 2022, Mainly Driven by Food Inflation Monthly in ation with sector contribution (percentage, y/y) 15 13 11 9 7 5 3 1 –1 –3 Jan-20 Feb-20 Mar-20 Apr- 20 May-20 Jun-20 Jul-20 Au g-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr- 21 May-21 Jun-21 Jul-21 Au g-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr- 22 May-22 Jun-22 Jul-22 Au g- 22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Other Service Housing Living (other) Food Headline WAEMU Avg Source: INSTAT, BCEAO, WBG and staff calculations. Note(s): 1/ Four-month moving average (4QMA) of quarterly growth (y/y) of industrial output and sales. Both series are indexed (2013=100). international financial transaction, and limited stable (5.1 percent of GDP) due to the recovery of revenue mobilization. Due to the trade embargo, business profits and the extension of electronic tax fil- indirect taxes declined driven by VAT collections (fell ing to medium and large enterprises in 2021. Tax reve- from 5.7 percent of GDP in 2021 to 4.4 percent of nue mobilization is still hindered by numerous exemp- GDP in 2022). Direct tax revenue performed relatively tions and applications of inefficient and reduced 4 2023 MALI ECONOMIC UPDATE rates.4 Meanwhile, external grants (projects and bud- current spending needs, the fiscal deficit was con- get-related) continued to decline to 0.3 percent of tained in 2022 through cuts in capital expenditures. GDP from 0.7 percent of GDP in 2021 as donor sup- The deficit was financed predominantly through new port has tightened in a context of heightened political issuances on the regional market, with limited external uncertainty. concessional loans. The government’s response to the food inflation crisis has also contributed to lower tax Public debt continued to rise in 2022 fueled by revenues in 2022. To policy response included the higher fiscal deficit, with a growing share of three categories of measures: (i) VAT and custom expensive domestic debt as access to external duty exemptions on major consumption items includ- concessional funding was limited. ing rice, vegetable oil, wheat, cotton seedcakes with the goal of lowering producer prices, (ii) price con- The government was denied access to both trols of major staple food items effective through a regional and external financing during the first memorandum of understanding with producers and half of 2022 due to the ECOWAS financial sanc- (iii) food exports ban on major cereals with the objec- tions. This included a complete suspension of tive of boosting domestic supply. Meanwhile, to offset access to the regional bond market during the first the pass-through of global oil prices onto domestic half of 2022 which resulted in the cancellation of sev- pump prices and shelter real incomes, the govern- eral debt issuance operations on the market (UMOA- ment reduced customs and excise taxes on energy titres). The government was also not able to honor its products in 2022. The quasi-fiscal measures are esti- domestic and external debt service payments and mated by the government to cost around 12.8 percent the government issued a note to investors, highlight- of tax revenues (CFAF 215 billion) in 2022. ing their inability to process debt service payments The unfavorable revenue performance and despite sufficient resources. Following the lifting of the commitment to a gradual fiscal consolida- the sanctions on July 3, 2022, the government moved tion roadmap under the IMF ECF program led to quickly to clear all debt arrears to both domestic and contained spending in 2022. Public expenditure external creditors and have since regained access declined to 24.4 percent of GDP in 2022. Meanwhile, to regional and external financing, during a moment current public spending stabilized around 15.9 percent of GDP in 2022, reflecting agreements with the trade unions that continued to drive up the wage bill since 4 A WAEMU directive (Directive 02-1998 further amended by Directive 02-2009) highlights the list of products eli- 2020. Security spending stabilized around 6.4 percent gible to the VAT exemptions, as well as the possibility of of GDP in 2022 (CFAF 704 billion). In contrast, capital applying a reduced rate (between 5 and 10 percent) on spending experienced a significant decline, reaching an equally limited list. However, the VAT exemptions in 3.5 percent of GDP (CFAF 399 billion) in 2022 from place on some products in Mali (e.g., bread, baby bot- 6.1 percent of GDP (CFAF 642 billion) in 2021 as a tles and teats, and agricultural inputs and equipment) result of the larger current spending, lower externally go beyond those authorized by the WAEMU directive. There are also other costly tax expenditures such as funded capital spending, and the commitment to a VAT exemptions per project under establishment agree- gradual fiscal consolidation roadmap. ments or exemptions from excise taxes (TIPP) on the The fiscal deficit remained high at 5 per- imports of petroleum products of companies in the min- cent of GDP in 2022 despite social and secu- ing sector during all phases of their projects (research, rity pressures. The deficit was contained due to the development, and exploitation). In a context of tight fis- commitment under the IMF ECF program5 and lim- cal space, rationalizing these tax expenditures can help increase domestic revenue mobilization while support- ited financing options with (i) further retrenchment of ing economic efficiency. donor support and (ii) the pausing of development 5 The ECF program 2019–2022 expired in August 2022, assistance during the first half of 2022 in response with only three out of the six reviews completed due to to the ECOWAS sanctions. Despite the additional multiple events (COVID, coups and sanctions). ECONOMIC AND POVERTY DEVELOPMENTS AND OUTLOOK 5 when regional market became increasingly saturated, shocks, and (iii) accommodative central bank pol- and options of external financing limited. icy with special COVID-financing windows, has led Total public debt accelerated in 2022 due to increasing annual debt servicing costs, which to the enlarged financing needs. At end 2022, rose by 0.5 percentage point of GDP over 2020–22. Mali’s stock of total public debt is estimated to have Given the limited external financing options over the increased to 55.2 percent of GDP from 52 percent medium-term, Mali will continue to rely predominantly of GDP in 2021. The stock of domestic debt which on domestic financing from the regional debt market increased substantially in recent years from 6.3 per- in 2023–24. To this end, the government adopted in cent of GDP in 2014 to 22.7 percent of GDP in 2021 2022 an ambitious program of domestic issues with further accelerated in 2022, reaching 26.7 percent longer maturity, which will require strong efforts in of GDP, as (i) interest costs on the rising portfolio of terms of communication with the market. The recent domestic debt continued to build up, (ii) financing BCEAO monetary tightening has further exacerbated needs remained high to tackle the social and secu- refinancing risks on the regional debt and calls for a rity needs, and (iii) budget support from international more proactive management of domestic debt. donors has been subdued since the August 2020 coup. Meanwhile, external public and publicly guar- Despite a deterioration in the terms of trade, the anteed (PPG) debt decreased slightly to 28.5 percent current account deficit (CAD) narrowed in 2022 of GDP at end 2022 from 29.3 percent of GDP at end as the ECOWAS trade embargo kept imports low 2021 due to the aforementioned reduction of external while cotton exports rebounded. donor support since the August 2020 coup. The growing share of domestic debt in The sanctions-induced contraction of imports Mali’s debt portfolio is fueling debt vulnerabilities contributed to the narrowing of the CAD to 7 per- with rollover risks. The exceptional rise of domes- cent of GDP despite unfavorable terms of trade. tic debt linked to (i) a retrenchment of donor sup- The CAD widened to 10 percent of GDP in 2021 on port, (ii) larger spending needs in a context of multiple the back of deteriorating terms of trade and increased FIGURE 1.6   Reduced Yet Elevated Expenditures FIGURE 1.7   The Share of Domestic Debt Further Brought the Fiscal Deficit to 5 Percent Increased as Public Debt Reached a of GDP New High Fiscal balance (percent of GDP) Public debt stock (percent of GDP) 30 0 60 25 –1 50 –2 20 40 –3 15 30 –4 10 20 –5 5 –6 10 0 –7 0 2015 2016 2017 2018 2019 2020 2021 2022e 2023p 2024p 2025p 2015 2016 2017 2018 2019 2020 2021 2022e 2023p 2024p 2025p Total revenue and grants Total expenditure Balance (RHS) External debt Domestic debt Total debt stock Sources: Government of Mali, IMF, WBG and staff calculations. Sources: Government of Mali, IMF, WBG and staff calculations. 6 2023 MALI ECONOMIC UPDATE FIGURE 1.8   Total Revenue and Grants Were FIGURE 1.9   While the Wage Bill Continued to Impacted by Tightened Donor Support Rise, Capital Spending Has Reduced and the ECOWAS Trade Embargo Considerably in 2022 Total revenue and grants: composition Total expenditures: composition 100% 100% 90% 90% 80% 70% 80% 60% 50% 70% 40% 60% 30% 20% 50% 10% 0% 40% 2015 2016 2017 2018 2019 2020 2021 2022e 2023p 2024p 2025p 2015 2016 2017 2018 2019 2020 2021 2022e 2023p 2024p 2025p Wages and salaries Goods and services Transfer and subsidies Tax revenue Non-tax revenue Interest Capital spending Spedial funds and annexed budgets Special funds and annexed budgets Grants Net lending Sources: Government of Mali, IMF, WBG and staff calculations. Sources: Government of Mali, IMF, WBG and staff calculations. FIGURE 1.10   Mali’s Revenues Historically Exceeded FIGURE 1.11   Government Spending Converged the WAEMU Average and Continued to the Increasing WAEMU Average to do so in 2022 in 2022 Mali v. WAEMU: revenue_grants Mali v. WAEMU: expenditure 25 30 25 20 20 15 15 10 10 2010 2013 2026 2029 2022 2010 2013 2026 2029 2022 Year Year Lower bound/Upper bound WAEMU regional mean Mali Lower bound/Upper bound WAEMU regional mean Mali Sources: Government of Mali, IMF, WBG and staff calculations. Sources: Government of Mali, IMF, WBG and staff calculations. import demand. Merchandise imports contracted and tionary pressures, food, and oil imports—exempted are estimated to have reached 28 percent of GDP in from the ECOWAS sanctions—increased by 2.4 percent 2022 from 28.6 percent of GDP in 2021 mainly due to of GDP and 0.3 percent of GDP respectively in 2022 the ECOWAS sanctions and the normalization of some but were offset by declines in other imports (chemicals, import flows (mining equipment). Due to global infla- cars, equipment) affected by the trade embargo. ECONOMIC AND POVERTY DEVELOPMENTS AND OUTLOOK 7 FIGURE 1.12   The Current Account Balance FIGURE 1.13   The Terms of Trade Deteriorated as Improved as the ECOWAS Trade Global Commodity Prices Climbed Embargo Reduced Imports Commodity prices and Terms of Trade (TOT) Current account balance (percent of GDP) 200 15 180 10 160 140 5 120 0 100 –5 80 60 –10 40 –15 20 –20 0 2015–01 2016–01 2017–01 2018–01 2019–01 2020–01 2021–01 2022–01 2023–01 2015 2016 2017 2018 2019 2020 2021 2022e 2023p 2024p 2025p Mercantile trade (net) Service trade (net) Primary income (net) Transfers (net) Current account balance Terms of trade Gold Cotton Oil Sources: BCEAO, DSA, INSTAT, UMOA titres, IMF, WBG and staff calculations. Sources: BCEAO, DSA, INSTAT, UMOA titres, IMF, WBG and staff calculations. Note(s): a Monthly commodity prices and terms of trade, all indexed (2012m6 = 100). TOT information Note(s): a Monthly commodity prices and terms of trade, all indexed (2012m6 = 100). TOT information available until end 2022. available until end 2022. Exports recovered in 2022, supported (a decline of 1.1 percent points of GDP) in a context of by the successful cotton campaign of 2021 high political uncertainty and clouded economic pros- and a resilient mining sector. Mercantile exports pects, as well as lower external official flows partic- increased to 26.8 percent of GDP in 2022 from ularly project (a decline of 0.6 percentage points of 24.5 percent of GDP in 2021 as a result of the recov- GDP) and budget support-related (decline of 0.2 per- ery of cotton exports (1.4 percent of GDP increase in centage points) financial inflows. The external posi- 2022) in relation to the 2021 successful cotton cam- tion deteriorated as a result in 2022, leading to an paign, and higher gold exports (1.3 percent of GDP overall negative balance of payments (–2.5 percent increase in 2022) which continue to benefit from high of GDP), and contributing to the erosion of regional international prices and the coming onstream of a reserves at the BCEAO. few mining fields. Remittance inflows are estimated to have declined and stabilized around US$1,025 million Following the onset of an international mone- (around 5 percent of GDP) in part due to the financial tary policy tightening, the regional central bank frictions induced by the suspension of financial flows BCEAO raised the policy rate gradually in 2022 to imposed by ECOWAS sanctions. counter inflation pressures. The financial account deteriorated sig- nificantly in 2022 with reduced official exter- Policy rates increased by 75 bps in 2022. The nal flows. The financial and capital account bal- gross international reserves of BCEAO declined from ance increased to 9.4 percent of GDP in 2021 due to 5.8 months (end 2021) to 4.4 months of imports (end exceptional FDI inflows in the mining sector (5.5 per- 2022). To bring inflation back to its target range of cent of GDP) and the IMF SDR allocations (1.3 per- 1–3 percent and anchor inflation expectations, the cent of GDP), which were offset by private capital BCEAO raised key policy rates by 25 bps in June, income outflows (1.8 percent of GDP). However, the September, and December respectively. The min- financial account balance declined to 4.5 percent of imum interest rate for tenders for liquidity injections GDP in 2022, due to lower private direct investments was raised from 2 percent to 2.75 percent. The mon- 8 2023 MALI ECONOMIC UPDATE FIGURE 1.14   The REER Remained Relatively Stable FIGURE 1.15   The Sectoral Distribution of Loans in Compared to the Nominal Exchange the Banking Sector Did Not Change Rate’s Upturn in 2022 Nominal exchange rate (CFAF per USD) and REERa Sectoral composition of loansa 105 640 100 103 90 620 101 80 99 600 70 97 60 580 95 50 93 560 40 91 30 540 89 20 520 10 87 85 500 0 2015 2016 2017 2018 2019 2020 2021 2022 2017–04 2017–07 2017–10 2018–01 2018–04 2018–07 2018–10 2019–01 2019–04 2019–07 2019–10 2020–01 2020–04 2020–07 2020–10 2021–01 2021–04 2021–07 2021–10 2022–01 2022–04 Retail, wholesale Manufacturings Other industries and hospitality REER (LHS) XOF (RHS) Transport and ICT Other services Agriculture Sources: BCEAO, DSA, INSTAT, UMOA-titres, IMF, WBG and staff calculations. Sources: BCEAO, DSA, INSTAT, UMOA-titres, IMF, WBG and staff calculations. Note(s): a Index for REER (2013=100), exchange rate is expressed as XOF/USD, available until 2022Q2. Note(s): a Information on the use of private credits as of 2022Q3. etary tightening is necessary to contain inflation and Poverty has sharply increased in 2022 due to neg- the deterioration of external stance. It however could ative GDP per capita growth and high inflation, give rise to the liquidity risk. especially of food, which accounts for a large con- The banking sector so far remains sound, sumption share of the poor. despite the adverse effects of the ECOWAS sanc- tions, while credits to the economy is projected to Poverty in Mali, measured at the international have decelerated in 2022. As of June 2022, gross extreme poverty line of $2.15 PPP a day, is esti- non-performing loans (NPLs) increased slightly to mated to have increased by 3.2 percentage 10.3 percent (from 9.8 percent at end 2021) of total points between 2021 and 2022. Correspondingly, loans. The temporary regulatory forbearance on NPL this has led to an increase in the number of extreme classification and provisioning related to repayment poor from 3.5 to 4.3 million people by end 2022 difficulties due to COVID-19 and postponement of (Figure 1.16). After a projected drop in the poverty rate debt service falling due was suspended in Decem- to 12.4 percent in 2019, its lowest level for the period ber 2021 but helped contain the impact of the pan- 2018-2022, poverty increased by 2.2 percentage demic on asset quality. The banking sector was also points in 2020 due to a decline in agricultural produc- impacted by the 2022 sanctions, which contributed tion and the adverse effects of the COVID-19 result- to a concentration of loans to the state-owned cot- ing in widespread job losses and a sharp decline in ton company (CMDT) to finance the agricultural cam- labor income. The increase in poverty after 2019 con- paign during the first half of 2022. The loans have tinued in 2021 and 2022 due to the economic crisis however been repaid following the lifting of the sanc- linked to country’s political instability, a drought in tions, with limited impacts on banks’ asset quality. 2021, and the adverse effects of the Russia’s invasion Lending remains highly concentrated in sectors such of Ukraine which has led to low growth and high infla- as retail trade and hospitality, relatively more affected tion. The same trend is observed for the national pov- by recent shocks. Credit growth to the economy is erty rate measured by the proportion of people living estimated to have decelerated in 2022 (7.6 percent). below the national poverty line. In fact, the national ECONOMIC AND POVERTY DEVELOPMENTS AND OUTLOOK 9 poverty rate has increased from 42.1 percent in 2018 remained negative until 2022 with a rate of –1.3 per- to 46.9 percent in 2022 (2022 poverty rate is a projec- cent. This significant decline is due to the health crisis, tion based on 2018 survey data based on economic low growth in agriculture, which was partly affected by growth) after a decrease at 38.1 percent in 2019. Ris- the security situation, and later to the war in Ukraine. ing food prices disproportionally affect poorer house- While all sectors seem to have been affected by the holds as the average share of food expenditure in adverse effects of COVID-19 with negative real GDP household budgets of the bottom 40 percent (60 per- per capita growth rates in 2020, the agricultural sec- cent) is slightly higher than the average for the over- tor was the least affected in 2022. However, even if all population (58 percent). The effective rate of infla- this sector remains the one where the majority of the tion faced by the bottom income quintile is 10 percent active population is concentrated, the high inflation higher than the inflation rate faced by the top quintile. (nearly 10 percent) recorded in 2022 led to a drop Growth in Mali is not estimated to have in the relative income of households and therefore been pro-poor during the 2018–2022 period. In an increase in poverty. Figure 1.18 and Figure 1.19 fact, growth on average was likely negative over the show that the majority of the Malian population works period for all households. However, as shown by the mainly in the agricultural sector, except for those in growth incidence curve between 2018 and 2022 the three wealthiest deciles. The proportion of indi- (Figure 1.17), the rate of decline was likely greater for viduals working in this sector decreases from over the poorest deciles, i.e., just over 40 percent of bottom 82 percent in the three poorest deciles to less than population, remained around the mean growth (just 20 percent in the richest decile. Unsurprisingly, poor under 6 percent) for better off, and less than the mean households derive most of their income from the agri- growth for richest three deciles. cultural sector but in lower proportions than employ- Despite some recovery in agricultural ment, reflecting the relative low productivity of the growth in 2022, poverty is estimated to have agricultural sector. increased. The growth rate of real GDP per capita fell Households have been negatively affected from 1.5 percent in 2019 to –4.3 percent in 2020 and by high inflation. The inflation is mainly driven by FIGURE 1.16   The Increase in Poverty Rate Was FIGURE 1.17   The Poorer Population Was Exposed Driven by a High CPI and a Decline in More Strongly to Negative Mean Real GDP Per Capita Growth Poverty Trends in poverty, GDP growth and In ation Growth Incidence Curve 12 25 –0.02 10 8 20 6 –0.04 4 15 2 0 10 –0.06 –2 –4 5 –6 –0.08 –8 0 0 20 40 60 80 100 2018 2019 2020 2021 2022e 2023p 2024p 2025p Percentile of income distribution in 2018 Real GDP per capita CPI Nominal Ag GDP per capita Poverty ( int'l, RHS) Growth rate 2018–2022 Mean growth 2018–2022 Source: EHCVM 2017-2018, WDI, staff projection and estimates. Source: EHCVM 2017-2018, WDI, staff projection and estimates. 10 2023 MALI ECONOMIC UPDATE FIGURE 1.18   Services Offer Most of the FIGURE 1.19   Agriculture Generates More than Half Employment to the Highest Income of the Income, Only in the 5 Poorest Classes Deciles Employment by Sector and Welfare Decile Income by Sector and Welfare Decile 100 100 8 12 13 13 9 9 13 9 12 12 14 12 13 10 13 12 3 18 15 23 27 6 5 35 5 31 12 15 19 16 80 6 42 43 80 15 7 4 27 28 56 8 7 34 8 6 8 34 43 43 71 8 51 60 9 60 6 10 62 12 10 9 7 89 40 82 82 76 12 82 40 1 9 70 74 68 68 65 61 66 64 11 57 54 50 46 11 48 44 46 20 20 35 10 35 32 25 18 13 0 0 Poorest Decile 2 Decile 3 Decile 4 Decile 5 Decile 6 Decile 7 Decile 8 Decile 9 Richest Bottom 40 Top 40 National Poorest Decile 2 Decile 3 Decile 4 Decile 5 Decile 6 Decile 7 Decile 8 Decile 9 Richest Bottom 40 Top 40 National Agriculture Industry Services Agriculture Industry Services Non-labor Source: EHCVM 2017-2018, WDI, staff projection and estimates. Source: EHCVM 2017-2018, WDI, staff projection and estimates. FIGURE 1.20   Given Higher Consumption, the higher than the GDP deflator6 which was stable during Wealthiest Households Were Most the period at around 2 percent, implying that house- Impacted by Rising Inflation hold purchasing power lagged far behind what would Household Speci c In ation Rates be suggested by the growth in real GDP. To assess 45 the true impact of rising prices on household wellbe- ing, an inflation index is constructed for each house- 35 hold, based on food and non-food inflation (measured by the CPI), weighted by the household’s own con- 25 sumption shares (Figure 1.20).7 15 Greater diversification of the economy could help achieve more sustainable poverty 5 reduction. A significant portion of households (over 10 percent) living around the poverty line work in the –5 service sector. The evolution in this sector could also –15 affect poverty depending on how it affects house- 2019 2020 2021 2022e 2023p 2024p 2025p holds around this poverty line. The distribution of Household-Speci c In ation O cial CPI GDP de ator employment and income by sector and by welfare decile shows that greater diversification is likely to Source: EHCVM 2017-2018, WDI, staff projection and estimates. improve the well-being of the population. rising cost of food (nearly 14 percent in 2021–2022 6 The price of gold and raw cotton would be influential in the GDP deflator, but not at all in the CPI. against 3.7 percent for non-food inflation). As house- 7 This household-specific weighting has little overall holds spend a slightly higher share of their income impact on poverty reduction, the main impact is adjust- on food, poverty has increased following inflation. ing household real consumption using inflation rather Moreover, inflation as measured by the CPI was much than assuming it grows proportional to real GDP. ECONOMIC AND POVERTY DEVELOPMENTS AND OUTLOOK 11 Economic and poverty outlook financial inflows are projected to remain moderate in 2023 but expected to slowly pick up over 2024–25. The economy is projected to rebound in 2023 before converging towards its potential level in The fiscal deficit will remain high in 2023 but is 2024–25, supported by a recovery of export agri- expected to gradually return to the regional ceil- culture and services. ing of 3 percent of GDP consistent with the fiscal consolidation roadmap. The economy is expected to rebound in 2023 with real GDP growth projected at 4 percent. The fiscal deficit is projected to stabilize at 4.9 per- This remains lower than the country’s potential out- cent in 2023 with tax administration reform mea- put growth (5 percent) reflecting a few medium-term sures improving revenue, before gradually con- considerations: (i) the uncertainty around the politi- verging to the WAEMU ceiling of 3 percent. This cal transition which lowers private investment pros- is consistent with the spending programming in the pects, (ii) persistent insecurity and its disruptive inci- 2023–25 medium-term expenditure framework. Tax dence on agriculture and service delivery, and (iii) the revenue is expected to recover in 2023 with higher eco- reduced fiscal space for growth enhancing pub- nomic growth, the reduction of exceptional tax expen- lic investments over 2023–25. Despite these bottle- ditures, and the extension of electronic tax filings. necks, export agriculture (cotton) and services partic- Spending is projected to be reprioritized towards capi- ularly trade and hospitality are expected to rebound tal investment, while the wage bill is expected to stabi- in 2023 and will support growth in the medium-term. lize in 2023 before experiencing a modest decline over Annual inflation is projected to fall to 5 percent in 2024–25. The retrenchment of donor support left the 2023 due to the recovery of food agriculture and will country with limited external financing options. Financ- normalize towards the regional target of 2 percent ing needs are projected to grow to 12.1 percent of GDP by 2025. High concentration of banks’ lending and in 2023 and will need to be predominantly covered by sovereign exposures exacerbates risks in an environ- domestic borrowing on the regional market. Following ment of tighter monetary policy. Cost of borrowing the fiscal consolidation roadmap, the deficit should became more expensive during a moment when the continue to decline to 3 percent of GDP by 2025, sup- country has limited options other than the increas- ported by programmed fiscal policy reforms and con- ingly saturated regional market. tinued improvement in expenditure efficiency. Public The CAD is projected to remain elevated debt will increase to 56 percent of GDP by 2025. at 6.2 percent of GDP in 2023, before gradually declining. Import demand is projected to rebound in Poverty is expected to decline only modestly over 2023 with the full resumption of commercial trade with the medium term as inflation remains elevated the ECOWAS region and higher demand for oil and at least in 2023 and GDP growth remains below food imports alongside lower global prices. The terms potential. of trade are also expected to improve in 2023 as oil prices decelerate. This will be offset by a decline of Poverty is expected to slightly decline over the next cotton and gold exports in 2023 consistent with the 3 years; however, growth is not expected to be pro- unsuccessful 2022 cotton farming campaign and the poor. Growth is expected to be 4 percent in 2023 and expected transition in the productive capacity of some 2024, with a real GDP per capita growth rate of 0.9 per- mines. Remittance inflows are projected to rebound cent for each year. Given relatively high inflation in in 2023, with the absence of exceptional financial fric- 2023, poverty is expected to slightly increase to around tions linked to the ECOWAS sanctions. The CAD is 19.5 percent in 2024, before declining to 18.8 percent expected to gradually decrease to 4.7 percent of GDP in 2025 thanks to a higher growth rate (1.8 percent) by 2025 following the easing of oil prices. Meanwhile, and lower inflation. Growth projections are expected with the political uncertainty, external capital and to be moderate in the three sectors (agriculture, indus- 12 2023 MALI ECONOMIC UPDATE try, and services) mostly between 2.9 and 4.5 per- the Center continues to hang over agricultural and cent. Household welfare is expected to decline for all pastoral activities in the Northern regions. In 2022, deciles of households in 2023 and have limited change in 2024 (Figure 1.21 Poorer households have experi- enced stronger negative growth rates and are projected FIGURE 1.21   Poorer Households have Experienced to benefit less from future growth). Growth in 2025 is Stronger Negative Growth Rates and expected to resume with higher growth in services, but are Projected to Benefit Less from this growth is not expected to be pro-poor, resulting in Future Growth a very slight decline in poverty over the medium term. Household welfare growth by decile and year 0.08 This outlook is subject to multiple downside risks, 0.06 in particular related to the timeline of the political 0.04 transition, insecurity, tighter financial market con- ditions, and climate shocks. 0.02 0.00 The outlook remains subject to significant risks –0.02 on the timeline of the political transition, the secu- –0.04 rity crisis, and climatic shocks. Further delays in the electoral timetable could trigger another round of eco- –0.06 nomic sanctions and further reduce external grants –0.08 2019 2020 2021 2022e 2023p 2024p 2025p and loans that support development spending in the Poorest Decile 2 Decile 3 Decile 4 Decile 5 budget. A heightened political uncertainty would also Decile 6 Decile 7 Decile 8 Decile 9 Richest hang over private investment including FDI and finan- cial flows and growth. Meanwhile, rising insecurity in Source: EHCVM 2017-2018, WDI, staff projection and estimates. FIGURE 1.22   Russia’s Invasion of Ukraine at end- FIGURE 1.23   The Share of Domestic Gross February 2022 Marks the Turning Financing Needs is the Highest in Mali Point for Government Bond Yields in among WAEMU Peers WAEMU GFN in WAEMU countries 2023 (percent of GDP) , at issuance 5 year maturity T-bond average rate 18 8 16 14 7 12 10 8 6 6 4 5 2 0 Burkina Togo Senegal Mali Niger Côte Guinea Benin Faso d'Ivoire Bissau 4 2/24/15 2/24/16 2/24/17 2/24/18 2/24/19 2/24/20 2/24/21 2/24/22 2/24/23 Domestic Financing External Financing Gross Financing Need Sources: BCEAO, DSA, INSTAT, UMOA-titres, IMF, WBG and staff calculations. Sources: BCEAO, DSA, INSTAT, UMOA-titres, IMF, WBG and staff calculations. Note(s): Projected gross financing needs (GFN) for 2023 based on latest DSAs. Note(s): Projected gross financing needs (GFN) for 2023 based on latest DSAs. Economic and Poverty Developments and Outlook1 13 violent incidents accelerated in the country, with grow- Burkina Faso, Chad, Mali, Mauritania, and Niger ing numbers of reported fatalities. Importantly, vio- are among the world’s most vulnerable to climate lence now affects agricultural strongholds in the Cen- change9 while having some of the highest poverty ter region. rates. Sustaining economic growth to reduce pov- A significant risk that has emerged over erty is already a challenge in the Sahel with growth the past 12 months is the rising cost of financing volatile and subject to multiple shocks, notably polit- on the regional market given Mali’s high domes- ical instability, insecurity, as well as climatic shocks, tic gross financing needs. Tighter monetary policy including frequent and intense droughts and floods. has translated into higher yields for 6–12-month T-bills According to the IPCC, most climate scenarios show and 5-year T-bonds for WAEMU countries. In the past that temperatures in the Sahel will rise by at least 2°C couple of months, several WAEMU countries, includ- in the near term (2021 to 2040) while rainfall patterns ing Mali, have had uncovered auction experiences. are projected to become more irregular, with sud- As of end March 2023, Mali has so far raised CFAF den oscillations between very wet and very dry years. 116.3 billion on the regional market, corresponding The Sahel CCDR projects that by 2050 the 5 coun- only to 8.3 percent of the annual target (CFAF 1409 tries’ annual GDP would be reduced by between 7 to billion). The country even cancelled a bond issue 12 percent with 13.5 million additional poor due to cli- (March 22, 2023) on the regional market. mate change-related shocks if urgent investments in The liquidity risk and subsequent pub- climate adaptation are not taken. lic finance difficulties could weigh on the wider However, the CCDR shows that adaptation economy and the society, urging a timely and measures can substantially reduce the economic high-quality fiscal consolidation. Given the limited losses and that there are significant opportuni- source of affordable financing (external and domes- ties for resilient growth and lower-carbon devel- tic), fiscal consolidation is eminent with emphasis on opment in the Sahel. With judicious pro-climate pol- the spending efficiency and domestic resource mobi- icies and investments in priority areas, Mali and the lization. Without a timely and high-quality fiscal con- other Sahel countries can stimulate growth, bolster solidation, government could be forced to cut outlays resilience and reverse environmental degradation and starting from non-essential spending, such as current transfers and subsidies (to key utility companies that are SOEs, and to local governments) and investment, 8 G5 Sahel Country Climate and Development Report which may further impact basic service delivery espe- (CCDR), World Bank, September 2022. The World Bank Group’s CCDRs are new analytical reports from the World cially in non-capital area and impact growth. A more Bank Group analyzing the linkages between growth, devel- severe spending cut affecting the wage bill payment opment and climate change. CCDRs build on data and could add to social tensions. The government could rigorous research and identify main pathways to reduce potentially run further arrears to suppliers or overdraft GHG emissions and climate vulnerabilities, including the from commercial banks, disturbing business activities costs and challenges as well as benefits and opportuni- and crowding out credits to the economy. ties from doing so. The reports suggest concrete, prior- ity actions to support the low-carbon, resilient transition. As public documents, CCDRs aim to inform governments, citizens, the private sector and development partners and Spotlight: Sahel Country Climate and enable engagements with the development and climate Development Report agenda. CCDRs will feed into other core Bank Group diagnostics, country engagements and operations. This spotlight summarizes the key macroeco- 9 According to several global indices, including the Notre Dame Global Adaptation Initiative (ND-GAIN) Coun- nomic-poverty impact analyses for Mali in the try Index which summarizes a country’s vulnerability Sahel Country Climate and Development Report to climate change in combination with its readiness to (CCDR) covering Burkina Faso, Chad, Mali, Mauri- improve resilience. Countries are ranked from 1 (lower tania, and Niger.8 risk) to 182 (higher risk). Mali is ranked 170 (high risk). 14 2023 MALI ECONOMIC UPDATE MPACT CHANNELS – MODELING THE LINK BETWEEN CLIMATE CHANGE AND BOX 1.1: I THE ECONOMY The modelling of impact channels used country-specific climate scenarios and biophysical effects models to estimate economic damages for each channel. The damages were introduced as shocks into a macro-structural model developed for each country to estimate impact on GDP and other macroeconomic aggregates. The six impact channels modelled are as follows (for further details see Annex 3.4): 1. Rainfed crop yields. Agricultural productivity shocks: Impact on annual crop yields, based on crop yield responses to changes in temperature and precipitation. 2. Heat stress and labor productivity. Labor productivity shocks: Impact on labor productivity due to heat stress on outdoor work in the agriculture, industry, and service sectors 3. Heat-related human health shock. Health shocks on labor productivity: Impact on total labor productivity from health shocks (disease) due to temperature changes. 4. Livestock yields. Livestock productivity shocks: Impact due to heat stress on animals and reduced availability of pastures to graze due to temperature and precipitation changes. 5. Inland flooding. Capital damages due to precipitation changes, considering floodplains, design flood events, spatial distribution of capital, and run-off dynamics. 6. Roads and bridges. Capital damages to road and bridges due to temperature and precipitation changes, and flooding effects across paved, gravel, and dirt roads. maximize the benefits of climate action for the poor. increases); (iv) and dry (smallest (or decrease) precip- The costs of inaction are far greater than the costs itation changes). See Annex 3.4 for details. of action. While the fiscal capacity to invest in adap- All climate scenarios predict an increase tation measures is limited, there are opportunities for in mean temperatures in Mali, with the size and expanding the use of risk financing instruments. One structure of the economy affecting the nature and such opportunity to strengthen the country’s financial magnitude of the impacts of climate change. Mean resilience to drought is explored in Chapter 2. temperature increases by 2050 are 0.8°C and 1.7°C under the optimistic and pessimistic climate scenar- All climate scenarios predict an increase in mean ios, respectively. The majority of climate scenarios temperature in Mali, while there is more uncer- predict an increase in precipitation.10 Under the wet tainty on precipitation. climate scenario, precipitation increases by 24 per- cent; however, under the dry climate scenario, precip- There is considerable uncertainty on global emis- itation declines by 7 percent. All other scenarios pre- sion trajectory and differences across different cli- dict increases in precipitation. For each country, three mate models. The CCDR models the economic and baseline growth scenarios (where the economy is not poverty impact of climate change through six impact subject to impacts of further climate change) were channels for each country for the period 2021–2050. developed: low, medium, and high growth.11 To account for uncertainty, the CCDR models the impact of climate change for each of the five coun- 10 Higher precipitation does not necessarily mean greater tries under six different emission scenario and cli- water availability, since simultaneous higher tempera- mate model combinations (“climate scenarios”) and tures can cause higher evaporation. presents estimates of economic and poverty impacts 11 The low-growth scenario is one of stagnation or a min- imal increase in per capita income, characterized by under four of them: (i) pessimistic (higher temperature increased fragility, conflict and violence (FCV) with no increases and larger precipitation changes); (ii) opti- structural transformation and high population growth. mistic (lower temperature increases and smaller pre- The medium-growth scenario is based on historical epi- cipitation changes); (iii) wet (largest precipitation sodes of sustained growth performance, with increase ECONOMIC AND POVERTY DEVELOPMENTS AND OUTLOOK 15 FIGURE 1.24   Mali Could Lose between 6.4 and 10.7 FIGURE 1.25   High Annual Variability in Climate Percent of GDP by 2050 Shocks Increases Volatility of Growth G5 Sahel Annual GDP loss by 2050 from climate change with no adaptation Mali: Annual livestock yield shocks with no adaptation 0 50% –2 40% –2.2 30% –4 –3.5 % deviation from baseline 20% –4.2 –6 10% –5.7 –6.8 –6.4 0% –8 –10% –10 –9.3 –20% –10.5 –10.7 –30% –12 –11.9 –40% –14 –50% Burkina Faso Chad Mali Mauritania Niger 2021 2026 2031 2036 2041 2046 Wet and Optimistic Climate Scenarios Dry and Pessimistic Climate Scenarios Dry Annual Wet Annual Dry 5-yr Avg Wet 5-yr Avg Source: G5 Sahel CCDR. Source: G5 Sahel CCDR. Large GDP losses, growth volatility and significant by 2050) and the roads and bridges channel (annual increases in poverty and inequality are expected GDP loss of –3.6 percent by 2050), and there is a from climate change shocks if no adaptation mea- positive impact via the livestock yields channel. Under sures are taken. the dry and pessimistic climate scenarios, all chan- nels yield negative impacts, with the largest from the In the Sahel, large economic output losses heat-labor productivity channel (annual GDP losses of are expected from climate change, with losses –6 percent by 2050), followed by the livestock yields increasing over time. The losses are significantly channel. Results are presented for the medium- higher under the dry and pessimistic climate scenar- growth baseline scenario, other scenarios are in the ios. By 2050, annual GDP could be reduced by 7 to Annex 3.4. 12 percent across the Sahel if no adaptation measures Large annual variability in the shocks to are taken. Figure 1.24 shows the annual GDP loss as rainfed crop and livestock yields pose additional the percentage deviation from the baseline GDP by challenges for the agriculture sector and food 2050. Importantly, these estimates are likely to under- security. Figure 1.25 shows livestock yield shocks estimate the impact from climate change because not under dry and wet climate scenarios. In one year, the all impact channels are included and because they do shock can be large and positive, while in the next it not include the magnifying effects of climate-induced can be large and negative. Even if across the entire changes in ecosystems, increases in conflicts, and period the net impact is small, the volatility creates migration shifts. challenges for households and the wider economy By 2050, annual GDP in Mali would be and contributes to food insecurity. reduced by 6.4 percent under the wet and opti- mistic scenarios and 10.7 percent under the dry in labor productivity and some structural transforma- and pessimistic scenarios by 2050 (Figure 1.26). tion. The higher-growth scenario has a growth rate Under the wet and optimistic climate scenarios, the 50–100 percent higher than the medium-growth sce- largest negative impacts come via the heat-labor pro- nario with significant structural transformation, reduction ductivity channel (annual GDP loss of –4.2 percent in FCV and realization of the demographic dividend. 16 2023 MALI ECONOMIC UPDATE FIGURE 1.26   Lower Labor Productivity Due to Heat FIGURE 1.27   Lower Labor Productivity Due to Heat Stress and Damages to Roads and Stress and Lower Livestock Yields Bridges Drive GDP Losses under a Wet Drive GDP Losses under a Dry and and Optimistic Climate Scenario Pessimistic Climate Scenario Mali: Annual GDP loss from climate change with no adaptaion (wet and optimistic) Mali: Annual GDP loss from climate change with no adaptaion (dry and pessimistic) 6 6 6 6 4 4 4 4 2 2 2 2 0 0 0 0 –2 –2 –2 –2 % GDP % GDP % GDP % GDP –4 –2.2 –4 –2.3 –4 –3.5 –4 –6 –6 –6 –8 –8 –6 –8 –10 –6.4 –10 –8 –7.0 –10 –12 –12 –10 –12 –14 –14 –12 –10.7 –14 2030 2040 2050 2030 2040 2050 Rainfed crops yield Livestock yield Rainfed crops yield Livestock yield Labor productivity (Heat stress) Labor productivity (Health impacts) Labor productivity (Heat stress) Labor productivity (Health impacts) Flooding Roads and Bridges Flooding Roads and Bridges Total GDP Impact Total GDP Impact Source: G5 Sahel CCDR. Source: G5 Sahel CCDR. The challenge of reducing poverty in the The results highlight that accelerating economic Sahel given high population growth rates will be growth with significant investments in adaptation exacerbated by climate change. By 2050 there and climate resilience is essential for Mali and the could be an increase in the poverty rate of the G5 rest of Sahel. Sahel countries from 27 percent projected under the medium-growth baseline scenario (no climate Growth and structural transformation will make change) to 29 percent under the wet and optimistic the economy more resilient to climate shocks. scenarios and 34 percent under the dry and climate Agriculture is more affected by droughts, floods, and pessimistic scenarios. This translates to an additional extreme heat than other sectors so a shift to indus- 4.1 to 13.5 million people falling into poverty. In Mali, try and services would reduce the impact of climate by 2050, the poverty rate will increase relative to the change. Moreover, the richer a country is, the more medium-growth baseline by 2.3 percentage points resources the government, firms, and households will under the wet and optimistic scenarios and 4.7 per- have to invest in adaptation and to cope with adverse centage points under the dry and pessimistic climate climate-related shocks. Finally, economic growth is scenarios, which translates to an additional 2.21 mil- essential to “offset” economic losses from climate lion people falling into poverty. change and to enable the increase in GDP per capita Inequality will increase and climate change needed to reduce poverty. will have a heterogeneous spatial effect in the The benefits of adaptation outweigh Sahel with higher poverty impacts in rural areas, the costs: The CCDR modelled potential adapta- including in some of the most vulnerable border com- tion interventions for three of the impact channels: munities in Chad, Niger, and Mali. Given the large nega- (i) expanded irrigation for rainfed crops; (ii) improve- tive impacts of climate change on poverty and the chal- ments in livestock feed practices; and (iii) and invest- lenge to fully adapt, expanding adaptive safety nets ments in climate resilient road and bridges. The anal- and other poverty reduction programs will be critical. yses show that damages from climate change can ECONOMIC AND POVERTY DEVELOPMENTS AND OUTLOOK 17 be significantly reduced even with partial adapta- and Risk Mitigation; (iii) Energy (which highlights tion. In Mali the loss from climate change is 10.7 per- the opportunity to develop in a low-carbon pathway cent of GDP by 2050 without adaptation and only by making the most of the region’s large renewable 6.7 percent of GDP with partial adaptation (i.e., the energy potential while meeting increased demands of three interventions modelled). See Annex 3.4 for a larger economy); (iv) Landscapes (integrated man- more details. agement of natural capital agriculture, water and envi- To accelerate resilient growth in the con- ronment); and (v) Cities (resilient urban development). text of climate change, the G5 Sahel CCDR iden- Chapter 2 presents options in the second of these, tifies measures, policies, and investments in five specifically looking into strengthening the country’s priority areas: (i) Institutions; (ii) Climate Financing financial resilience to drought. 18 2023 MALI ECONOMIC UPDATE 2 STRENGTHENING FINANCIAL RESILIENCE OF PASTORALISTS TO DROUGHT For a country with limited domestic resources financing solutions have been adopted in other Afri- stretched among competitive needs, climate can countries such as Kenya and Ethiopia. After a finance and the private sector must provide sig- section focusing on the results of a feasibility assess- nificant funding to achieve development goals. ment of the socio-economic, technical, and opera- Disaster risk financing and insurance (DRFI) pro- tional conditions of an IBDRFI system in Mali, the final vide mechanisms that aim to reduce socio-eco- part outlines some policy options that could be con- nomic impacts of climatic shocks, while protecting sidered when developing such scheme to protect the key sectors with timely support. This section of the most vulnerable pastoral households in the country. 2023 Mali Economic Update focuses on the estab- lishment of such instrument for pastoralists, a sector that accounts for about 15 percent of GDP. However, Why financial protection from drought the following discussion abstracts from political econ- shocks is relevant for pastoralists omy and fragility considerations linked to the interrela- in Mali tions between agro-pastoral activities, climate change and competition over natural resources and conflicts. Mali is severely exposed to recurrent droughts, First, the chapter provides an overview of the rele- floods, and locust invasions. Between 1970 and vance of financial protection against drought to the 2020, Mali experienced at least 40 major shocks. sector. Then it presents how index-based drought risk While floods occurred 26 times, droughts occurred 19 only nine times, but the latter had a more significant FIGURE 2.1   Droughts Have Affected Most Malians impact—affecting over 14 million people (Figure 2.1). over the Past Fifty Years Drought is estimated to have affected about 400,000 Number of people a ected by disasters between 1970 and 2022 in Mali people per year and reduced crop-related agricultural income by US$9.5 million annually. By 2030, these fig- ures may rise to 650,000 and US$35 million, respec- Flood tively.12 Locust infestations in 1985–88 and 2003–05 destroyed millions of hectares of crops, however, Drought the impact on people was not recorded. Given chal- lenges with data collection, impacts of natural disas- ters, including those induced by climate change and 0 5 10 15 variability, are often underestimated. Million of People Agriculture as a whole is highly exposed to Source: G5 Sahel CCDR. drought risk. This includes the livestock sector, which is one of the most important economic sec- tors in Mali and among the largest in the region. are among the poorest and most vulnerable parts of Around 70% of the Malian population is engaged in the population. Typically, the poorest are the most agriculture, most of whom in crop farming. As the vast severely affected by climate-related natural disasters. majority of farms is rainfed, farmers are particularly Their vulnerability arises from overexposure and a vulnerable to droughts. Livestock farmers are also lower ability to cope and recover from the shocks they very exposed. The livestock sub-sector accounts for experience.15 40 percent of primary sector GDP and around 15 per- The pastoralists’ plight is reflected by the cent of the national GDP. Around 85 percent of farm- historic multi-year droughts that led to major ers raise livestock, and the sector generates income food crises. While extensive grazing practices in the for about 30 percent of the population (about six mil- low-precipitation regions in the central north can be lion people). Among the ECOWAS countries, Mali has productive, droughts invariably lead to reduced for- the second largest herd of livestock after Nigeria.13 age and water availability. This reduces livestock There were an estimated 60.1 million heads of live- productivity and can result in significant losses of pro- stock in Mali in 2019, excluding poultry.14 This national ductive assets, income, and wealth. Over the past five herd is largely composed of goats (43 percent), sheep decades, the most severe droughts leading to major (31 percent) and cattle (20 percent), while camels, food crises occurred in 1972–74, 1983–85, 2002–04, donkeys, horses, and pigs comprise the remaining 2011–12, and 2015–18.16 These major droughts have 6 percent. Livestock is also a significant export sector, with cattle export revenue accounting for 3 percent of total exports in 2021, and most livestock exported to 12 World Bank Group (2019). Disaster Risk Profile Mali. Côte d’Ivoire, Ghana, and Senegal. 13 Based on FAOSTAT data for 2019, Mali has a larger herd than Niger in terms of head of livestock (60.1 versus 50.6 Pastoralists and agro-pastoralists remain million). However, Niger has a larger number of tropical an often-overlooked yet acutely drought-vulner- livestock units (20.9 vs. 18.4 million in Mali). Food and able group. Pastoralists (i.e., those that raise live- Agriculture Organization (FAO) (2021). FAOSTAT Data. stock as the primary means of economic activity) are 14 FAO (2021). typically found in the arid and semi-arid zones in the 15 Hallegatte, S., A. Vogt-Schilb, M. Bangalore, and J. Rozen- north, such as in Tombouctou, Gao, and Kidal, where berg (2017). Unbreakable: Building the Resilience of the Poor in the Face of Natural Disasters. Climate Change rainfall is less than 400 mm per year. Agro-pastoral- and Development. Washington, D.C.: World Bank. ists (i.e., those that grow crops and raise livestock) are 16 World Bank Group (2022a). G5 Sahel Region Country concentrated in the south, where rainfall is higher than Climate and Development Report. CCDR Series. Wash- 400 mm per year. Pastoralists (and agro-pastoralists) ington, D.C.: World Bank. 20 2023 MALI ECONOMIC UPDATE adversely impacted water resources, agriculture, By 2050, the reduction in livestock yields in the dry human livelihoods, food security, GDP, and livestock. scenario is expected to be around 15 percent in Mali. During the Sahelian droughts of the 1970s and 1980s, thousands of pastoralists searching for water and for- age for their animals migrated southward into coun- How index-based drought risk tries such as Burkina Faso, Côte d’Ivoire, Ghana, and financing for pastoralists works Nigeria. This led to significant numbers of animals perishing. For example, around 40 percent of live- Disaster risk financing and insurance (DRFI) pro- stock was lost in Mali during the 1972–74 drought. vide mechanisms that aim to reduce adverse socio- Droughts can also lead to conflict, or exac- economic impacts of potential crises. These mecha- erbate existing conflicts, as pastoralists migrate nisms can provide timely, targeted finance in response into regions being used by others, such as crop- to or in expectation of a shock. Drought risk financ- ping zones or rangelands. The escalation of Jihad- ing and insurance is becoming an integral part of cli- ist insurgencies from 2017 onward has increased mate risk management strategies as a key component ethnic tensions and violence, especially in the cen- of financial protection planning in low- and middle- tral regions, and has exacerbated the vulnerability of income countries. DRFI approaches include market- pastoralists. The loss of productive assets and loot- based instruments (e.g., insurance schemes, catas- ing linked to violence and security incidents have trophe bonds and swaps), contingent financing (e.g., resulted in the disruption of markets and livelihoods credit) and budgetary tools (i.e., a dedicated reserve for households in affected areas. To cope with the fund or contingency budget). These approaches are effects of droughts, pastoralists have resorted to flee- all designed to increase financial resilience to climate- ing their drought-stricken villages in search of alter- related shocks, linking response actions to pre-defined native water and pasture resources. While mobility is financial resources and disbursement mechanisms for an effective strategy for pastoralists to protect their timely intervention. In this way, DRFI can lead to rapid assets, especially during droughts, it can lead to con- and cost-effective preparation, recovery, and recon- flicts with farmers in sedentary agricultural produc- struction efforts. Some of the benefits of DRFI include tion systems. In many cases, pastoralists often opt for the following (context dependent): quick sales of their animals at low prices to buy food as a primary coping strategy. This is detrimental, as it • Crowding in private sector capital and invest- depletes key assets that are difficult to recover after ment to develop resilience and adaptation droughts, thus increasing households’ vulnerability to mechanisms the next drought. • Reducing public budget uncertainty and vol- As the CCDR spotlight shows, looking for- atility, which can be detrimental to economic ward, variation in rainfall will be a bigger driver growth19 of uncertainty in livestock yields than variation in • Reducing the cost of droughts through timely projected temperature.17 Climate change scenar- response ios for Mali project mean temperature increases by • Decreasing households’ reliance on negative 2050 of 0.8°C and 1.7°C under the optimistic and pes- coping mechanisms simistic climate scenarios, respectively.18 The major- ity of climate scenarios predict an increase in precip- 17 World Bank Group (2022a). itation. Under the wet climate scenario, precipitation 18 Based on a moderate projection scenario. World Bank increases by 24 percent and there is a positive live- Group (2022b). Climate Change Knowledge Portal. Country Profile Mali. stock yield shock. However, under the dry climate sce- 19 Museru, M., F. Toerien, and S. Gossel (2014). The Impact nario, precipitation declines by 7 percent and there are of Aid and Public Investment Volatility on Economic generally negative livestock yield shocks, whose mag- Growth in Sub-Saharan Africa. World Development nitude increases over time as pastures become dryer. (Vol. 57, pp. 138–147). Strengthening Financial Resilience OF PASTORALISTS to Drought 21 SATELLITE NORMALIZED DIFFERENCE VEGETATION INDEX (NDVI) BOX 2.1:  The NDVI is a relative indicator of green vegetation cover or vigor obtained by measuring the difference between near infra-red and reflectance. Higher NDVI values indicate denser cover or healthier vegetation and vice versa. In the context of operational NDVI-based IBDRFI products for pastoralists, the NDVI is used as a proxy for forage availability, since during a normal wet year/season, vegetation has a higher NDVI than during a drought year/season. While alternative satellite indices of drought exist such as satellite rainfall estimates and soil moisture products, the NDVI is currently the most widely used operational systems indicator for drought early warning, monitoring, and index insurance in African rangelands. This is because of the well- established relationship between the NDVI and the vegetation condition, which is in turn directly related to forage resources available for livestock. • De-risking pastoralists’ production, leading to FIGURE 2.2   A Cost-Benefit Snapshot of IBDRFI for better investment and risk management deci- Small-Scale Agricultural Producer sions and access to credit Cost of drought for households $1,300 Index-based DRFI (IBDRFI) solutions have been developed and adopted by pastoralists in US$1 = US$3 several Sub-Saharan African countries to provide Investment Reduced in rapid humanitarian payouts in the event of developing drought condi- assistance spending tions. Key features of these solutions are the regular monitoring of forage availability and payouts to pasto- ralists and other value chain actors in the event of con- ditions that are threatening the survival of livestock. Cost of restocking X3 Satellite observations are used to measure forage a core herd of sheep vs. cost of keeping levels (Box 2.1), which are used to calculate poten- them alive through $50 $0 tial payouts using pre-defined rules. When a payout is feeding Timely Support Support determined, it is then made to pastoral groups or indi- Funding Delayed Delayed by by 4 months 6 to 9 months vidual households often using mobile payment sys- tems to maximize access, speed, and transparency. Source: Clarke, D. and R.V. Hill (2013).a IBDRFI can prevent loss of productive a Clarke, D. and R.V. Hill (2013). Cost-Benefit Analysis of the African Risk Capacity Facility. Vol. 1292. International Food Policy Research Institute. assets (i.e., animals), thus reducing economic losses and protecting households from falling into poverty traps. Replacing lost assets (or dead wealthier households may lend some livestock to a livestock) is significantly more expensive than pre- poorer, drought-affected household, allowing them to venting loss (or death) through timely intervention keep the offspring of the borrowed animals to build (Figure 2.2). In Kenya, a study found that it is three their own stock. This practice has been adapted and times more expensive to restock a core herd of sheep institutionalized by several international development and goats following a drought than to keep animals organizations but may come under strain in the event alive through feeding during drought events.20 of covariate shocks. While such traditional schemes IBDRFI can complement and build on tradi- can help some pastoralists to replenish their herd, they tional informal risk sharing practices, thus gener- don’t provide asset protection—e.g., preventing live- ating widespread benefits. These practices can sup- stock mortality through early, targeted pay-outs. IBDRFI port households that will have incurred losses after can complement such mechanisms to effectively deal drought events, but these practices may not offer suf- ficient protection. For example, among the Fulani 20 Venton, C.C. (2018). The Economics of Resilience to people (also called Peul or Fulbe in West Africa), Drought. Washington, D.C.: USAID. 22 2023 MALI ECONOMIC UPDATE BOX 2.2: INDEX INSURANCE AT DIFFERENT LEVELS Micro-level (direct): Policyholders are individuals, e.g., farmers, market vendors or fishers, who hold policies and receive payouts directly. These policies are often sold at the local level and retailed through a variety of channels, including micro-finance institutions, farmers’ cooperatives, banks, NGOs, and local insurance companies. Premiums are either paid in full by clients or subsidized (or both). Meso-level (indirect): Policyholders are risk aggregators such as associations, cooperatives, mutuals, credit unions, or NGOs, whereby a reinsurer makes payments to the risk aggregators who then provide services to individuals. Macro-level (indirect): Policies are held by governments or other national agencies, within the international or regional reinsurance market. Payouts can be used to manage liquidity gaps, maintain governmental services, or finance post-disaster programs and relief efforts for pre-defined target groups. Beneficiaries of these programs can be individuals. These schemes can be operationalized through regional risk pools. Source: Schaefer, L., and E. Waters (2016). Climate Risk Insurance for the Poor and Vulnerable: How to Effectively Implement the Pro-Poor Focus of Insuresilience. Munich Climate Insurance Initiative. with systemic shocks, such as severe droughts, that companies across northern Kenya and south- are likely to have a widespread impact, with benefits ern Ethiopia since 2010 and 2012, respectively; for pastoralists, the private sector, and the government: as of 2020 it covered over 25,000 policyhold- ers in the two countries.21 • For pastoralists: Pastoralists can receive finan- • The Kenya Livestock Insurance Program (KLIP) cial support earlier compared to traditional in- is a macro-level social livelihood protection surance schemes or humanitarian aid to pro- scheme that was launched in 2015 by the Gov- tect their livestock; this can avoid catastrophic ernment of Kenya with technical support from impacts and enable better herd management. the World Bank Group and the International • For the private sector: IBDRFI initiatives can Livestock Research Institute; as of 2020, it cov- crowd-in investments from the private sector ered 18,000 households.22 and from donors to improve financial literacy • The Satellite Index Insurance for Pastoralists and financial infrastructure; this is a prerequi- in Ethiopia (SIIPE) program was launched in site for the Implementation of index-based live- 2017 and implemented by the World Food Pro- stock insurance (IBLI). gram (WFP) and the Somali regional govern- • For governments: IBDRFI initiatives can mini- ment; as of 2019, the program covered around mize governments’ fiscal exposure to drought 28,000 beneficiaries.23 events through advance planning; this allows • In Zambia, a livestock insurance scheme, sim- for early responses and more cost-effective ilar to SIIPE was launched by the Ministry of funding to mitigate the impact of droughts and Fisheries and Livestock in partnership with to reduce the need for humanitarian aid. WFP and the International Fund for Agricultural Development; it targets 5,000 livestock keep- Since 2010, several IBDRFI solutions for pas- ers across the country.24 toralists have been developed and implemented across Sub-Saharan Africa. This includes micro-level 21 International Livestock Research Institute (2022). Index- retail insurance products, macro-level social livelihoods Based Livestock Insurance. protection coverage, scalable safety net programs, and 22 World Bank Group (2018). Kenya’s Pastoralists Protect sovereign-level drought risk financing solutions (also Assets from Drought Risk with Financial Protection. Fea- ture Story. Box 2.2). Examples include the following: 23 World Food Programme (2019). Ethiopia, Satellite Index Insurance for Pastoralists (2017–2019): Impact Evaluation. • IBLI is a micro-level retail insurance product that 24 Zambian Business Times (2020). Index-based Livestock has been sold and scaled-up by local insurance Insurance Launched. Strengthening Financial Resilience OF PASTORALISTS to Drought 23 Impacts and lessons learned from growing demand from new countries. While there Kenya and Ethiopia are schemes in East Africa, new programs can uti- lize the vast knowledge accumulated over the last IBDRFI initiatives implemented in Kenya and Ethiopia decade to further improve the existing solutions. The have produced valuable lessons and evidence on the new solutions can be tailored to the local context, positive impacts for governments and pastoral commu- including pastoral systems, and become an integral nities (Table 2.1). These initiatives also provide a proof part of broader risk management, resilience build- of concept, with different implementation schemes tai- ing, and pastoral development policy frameworks. lored to the country’s specific needs. The implemented The interventions used in East Africa took account schemes range from commercial insurance programs of the risk of conflict between pastoralists (both with various premium subsidy levels to government- within the country and between countries), the polit- funded macro-level social livelihood protection pro- ical economy, and the levels of financial inclusion in grams that target the most vulnerable pastoralists. The each country. Specific lessons can be learned from experience of Kenya and Ethiopia has led to strong the IBDRFI programs implemented in Kenya and demand for IBDRFI from several countries across Ethiopia: Sub-Saharan Africa, and it has increased interest from development partners in response to this demand. • These programs generated considerable so- The IBDRFI solutions for pastoralists are cial and welfare benefits for pastoralists who in- still evolving in response to lessons learnt and sured their livestock. TABLE 2.1   IBDRFI Solutions Implemented under KLIP and their Impact 1 • Premium payment reduced public financial burden in case of drought US$10 million payouts since inception Protect Risk transferred to the private sector • Predictable and budgeted expenditures allow made by the private sector Government better resource allocation and harmonization with Budget complementary initiatives 2 • Public sector premium guarantees regular income • Investment in infrastructure attracts the private sector IBLI coverage expanded from 3 to 8 countries Expand Public subsidies and investment in infrastructure to provide more services Number of IBLI policies increased from Markets • More awareness on the product increases the potential 4 thousand to over 20 thousand  for retail sales 3 Intensification: Increased investments in higher-returns production strategies Protect Good • Strategic livestock sales when prices are high Reduced drought risk Greater income Seasons Vulnerable People • Increased investments in veterinary services • Reduced precautionary savings Less reliance on detrimental coping strategies during drought Reduced income loss during • Less distress selling of productive assets drought • Less skipping meals during drought Drought Improved post-drought economic and • Maintained investments in human capital Seasons welfare outcomes Early action to mitigate the impact of drought Payments in anticipation of • Destocking in anticipation of price and resource shocks drought • Early purchase of inputs to sustain remaining herd during the coming drought Source: Adapted from Fava, F. et al (2021).a a Fava, F., Jensen, N., Sina, J., Mude, A., Maher, B. (2021). Building financial resilience in pastoral communities in Africa: lessons learned from implementing the Kenya Livestock Insurance Program (KLIP). Washington, D.C.: World Bank Group. 24 2023 MALI ECONOMIC UPDATE • Payouts influenced pastoralists’ decision-mak- approaches, and data and management infra- ing strategies on purchasing livelihood protec- structure. tion and livestock inputs. • A public-private partnership model can be Lessons to date highlight significant chal- an effective way of crowding in private sector lenges in implementing IBDRFI in extensive pas- capacity, transferring risk to the private sector, toral regions, particularly in terms of financial sus- and stimulating market expansion. tainability and effective product distribution. The • Government leadership and direct investment experience of ongoing and previous schemes shows a can be effective if associated with a strong part- need to identify new low-cost distribution channels for nership with the private sector, with clearly de- IBDRFI in East Africa.25 The DRIVE project (see below) fined roles and incentive structures. aims to develop these channels to distribute and oper- • A mechanism for long-term public commitment ate products through aggregators and groups. In addi- needs to be established to guarantee the stabil- tion, the IBDRFI experiences in Kenya and Ethiopia ity of the scheme. have demonstrated the need for parallel investments • Premium subsidies for scaling up and consol- in resilience-building and market development for pas- idating the scheme are important, but should toral communities. Insurance by itself cannot build be associated with smart targeting mecha- drought resilience and protect livelihoods. nisms and private sector incentives for market Overall, evidence from operational insur- development and expansion. ance programs suggests significant benefits from • Financial education on insurance, awareness IBDRFI instruments. These include mutual benefits creation and capacity strengthening at all lev- between the public and private sectors, and positive els are fundamental and require sufficient re- outcomes for the welfare and livelihoods of pastoralists sources for such schemes to achieve sustain- during crisis and non-crisis periods. The experiences ability. and lessons from East Africa remain relevant and very • Accurate insurance product design is critical to useful in several ways for any future interventions in create trust and achieve the desired impact, as Mali and the Sahel in general. However, intervention is having a robust data infrastructure for prod- design should consider Mali’s specific context, partic- uct quality assessment and comparison. ularly the impact of conflict on pastoralists, the political • Establishing effective payout delivery channels economy, and the level of financial inclusion. to ensure guaranteed and timely payments is The World Bank is supporting a major essential and requires dedicated strategies IBDRFI initiative in East Africa for pastoral com- and mechanisms. munities, which could provide valuable lessons • Engaging with stakeholders to tailor products for Mali and the Sahel. In 2022, the governments of to specific agro-ecological and socio-econom- Djibouti, Ethiopia, Kenya, and Somalia, with the sup- ic contexts, and evolving environmental condi- port of the World Bank, launched the De-risking, Inclu- tions is necessary throughout the entire pro- sion and Value Enhancement of Pastoral Economies gram implementation cycle. in the Horn of Africa (DRIVE) project. The project’s • Implementation is as important as technical de- aim is to improve adaptation to the impacts of climate sign: digital premium collection, e.g., using mo- change, while improving access to financial services bile money, is crucial to achieve the desired de- (such as credit and savings), access to commercial velopment impact, build trust, and ensure the livestock markets for pastoral communities, and inclu- sustainability of the program. sion for women and other marginalized groups. The • Scaling up IBDRFI initiatives requires strong program comprises two interlinked components: coordination and harmonization of different drought risk management instruments to op- timize their financing mechanisms, targeting 25 Fava, F. et al. (2021). Strengthening Financial Resilience OF PASTORALISTS to Drought 25 • Enhancing financial resilience to climate pastoral systems could benefit from an IBDRFI initia- shocks: DRIVE will co-finance a range of fi- tive targeting pastoralists. A scenario analysis pro- nancial services in Ethiopia, Kenya, and So- vides an initial illustrative indication of the costs of a malia, including IBLI, savings and digital pay- hypothetical IBDRFI scheme based on historical data. ments accounts (such as mobile money); this is complemented by financial literacy and aware- Socio-economic feasibility of an IBDRFI scheme ness campaigns to improve pastoralists’ under- rests on the prominence of pastoralism and its standing and knowledge of financial services. exposure to droughts. • Commercializing livestock production: DRIVE will link pastoralists to markets, exporters, and The socio-economic feasibility assessment con- processes, enabling them to sell high-quali- cluded that two conditions necessary for the ty livestock through a formal livestock value development of an IBDRFI scheme are in place. chain; women-owned and youth-owned busi- First, the livestock sector is highly important to the nesses will be specifically supported for this. Malian economy. Around 80 percent of households are involved in rearing livestock. While agro-pastoral- DRIVE is designed to increase the financial ism is practiced by most of the population, the national resilience of pastoralists through public private livestock herd is almost equally split between pastoral- partnership. This includes domestic and international ists (45 percent) and agro-pastoralists (55 percent). insurance markets, financial service providers, and gov- Second, droughts have typically led to recurrent food ernments. The program builds on experiences and les- security crises in Mali, affecting the pastoral regions sons learnt globally, particularly to achieve scale and significantly. While there is limited data on the costs of develop a sustainable IBDRFI scheme. The regional droughts to the livestock sector, indicative evidence nature of DRIVE focuses on reducing costs by shar- shows that costs can be extremely high (Section 2.1). ing public goods, insurance products and infrastruc- The pastoral areas may expect annual losses as high ture, which in turn can support scale. The private sec- as 3.7 percent of the rangeland production and up to tor’s involvement can help achieve sustainability. This 20.6 percent in 100 years.27 involves prioritizing productive pastoralists who have the capability and capacity to contribute to premiums. The Fifteen to 25 percent of Mali’s land, which host project offers useful insights on how to design and plan 63 percent of national livestock, might be suitable an IBDRFI program for Mali and the Sahel. A feasibility for an IBDRFI product depending on rangeland study has been conducted to this end, and the following review. sections provide key findings and recommendations. The technical feasibility assessment found that recurrent droughts have contributed to changes Key findings of a feasibility assessment in vegetation characteristics and composition in for Mali Mali. This part of the assessment analyzed the design requirements for an accurate index and trigger mech- A feasibility assessment was performed to inform anism, as well as possible solutions. Critical for this is the development and implementation of policies to increase the resilience of pastoralists in Mali against severe drought shocks.26 The assessment 26 Fava, F., R. Banerjee, N. Kahiu, A. Maiga, F. Lung, N. considered socio-economic (potential demand and Jensen, T.F. Dicko, and J. Plevin (2023). Strengthening Financial Resilience to Drought: A Feasibility Study for value), technical (i.e., product design), and operational an Index-Based Drought Risk Financing Solution for Pas- factors to design and implement IBDRFI solutions in toralists in Mali. Washington, D.C.: World Bank Group. Mali. The feasibility study found that, with targeted This and the next section draw on this study. investments and supportive policies, Mali’s extensive 27 Fava et al. (2023). 26 2023 MALI ECONOMIC UPDATE to understand the changes in vegetation. These are Low non-life insurance, low financial literacy, and caused by low, erratic, and variable rainfall with wide- ongoing security risks constitute key operational spread inter-annual negative precipitation anomalies. obstacles to IBDRFI solutions in Mali. This is particularly prevalent in the north of the country within the Sahara and Sahelian bioclimatic regions.28 The operational feasibility assessment explored In recent years, drought coupled with overgrazing has the conditions required to implement effective, led to degraded savanna structure, vegetation cover, scalable, and sustainable IBDRFI solutions. This and productivity. This has subsequently led to steppe- assessment looked at some of the main ingredients like characteristics, or bare and unproductive land in for an insurance market and insurance products to be extreme cases. launched, which include the regulatory environment, Around 15 percent of Mali’s land area is fully institutional capacity, financial literacy, insecurity, and suitable for an IBDRFI product for pastoralists, the demand for insurance among pastoralists. while 10 percent is suitable but requires rangeland Mali is a member of the regional insurance review (Figure 2.3). Collectively, these areas host 63 control commission CIMA. CIMA (Commission percent of the national livestock herd. The central part Régionale de Contrôle des Assurances) is a confed- of the country is characterized by fully suitable units. eration of 14 countries in West Africa (all members Rangeland review units are mainly in the central west- of WAEMU and CEMAC) whose aim is to foster co- ern regions, and forage review units are located mainly operation among the countries’ insurance sectors in the north. Both rangeland and forage units meet all and encourage the development of national insurance the technical criteria but need to be further reviewed markets. CIMA also supports the creation of enabling with local stakeholders to confirm their suitability for environments in each of its markets, as well as ensur- extensive livestock herding. This is because the land ing regulatory harmonization. Mali has a conducive use in these regions is mixed and includes crops. regulatory environment, which is supervised and reg- ulated by CIMA and Direction des Assurances. FIGURE 2.3   Technical Feasibility of IBLI Design in Mali has low non-life insurance penetration Mali (0.32 percent of the national GDP), which is sig- nificantly lower than in many other CIMA mem- bers. This is due to the lack of a culture of insurance purchase, poor understanding of the benefits of insur- ance, high levels of poverty, and the insecurity situa- tion in the country.29 Nevertheless, there are five major insurance groups that dominate Mali’s insurance mar- ket and one industry association, the Comité des Compagnies d’Assurances du Mali, whose aim is to lobby the government to create more awareness of insurance through advertising campaigns for the gen- eral population. Low financial literacy in Mali’s pastoral areas and generally low levels of financial inclu- sion are a significant barrier, indicating the need Legend Suitability class for significant investments. Financial literacy is a pre- Regions Forage Review Rangeland Review Suitable Unsuitable requisite to stimulate informed demand and establish Source: Fava, F. et al (2023). Note: The 55 percent for forage review can be misleading as it is the result of unit-level aggregation of the index. While an entire unit can fall withing the forage review class, this does not mean that 28 Cotillon, S. E., and G.G. Tappan (2016). Landscapes of the whole area within that unit is feasible. In reality, a large portion of the land falling in this class is unsuitable because of low signal intensity (unable to reliably detect vegetation cover separately from West Africa: A Window on a Changing World. other types of natural land cover, e.g., desert). 29 AXCO (2020). Country Information Mali. Strengthening Financial Resilience OF PASTORALISTS to Drought 27 a local market for insurance schemes. Well-designed partnered with Inclusive Guarantee to provide credit sensitization campaigns can improve financial liter- bundled with livestock agricultural insurance. OKO, acy among pastoralists, while insurance and exten- an insurtech, provides weather-index insurance for sion agents can be trained through capacity building. rice and onions in partnership with SUNU Assurances In addition, a stronger overall institutional and pri- and Orange Money. The National Meteorological Ser- vate sector capacity is required to support large com- vice (Direction Nationale de la Météorologie or Meteo mercial insurance or social livelihood protection ini- Mali) is responsible for collecting, archiving, and ana- tiatives. Financial inclusion has grown between 2017 lyzing basic agro-meteorological data. However, gaps and 2021 due to increased mobile money services in meteorological observation networks persist, caus- but it remains still relatively low. For example, in 2021 ing bottlenecks in providing actionable climate infor- only 44 percent of Malian adults owned a financial mation services nationally. account (up from 35 percent in 2017).30 This is still Several international organizations are limiting opportunities to improve access to adjacent involved in bridging data gaps, each of which can financial services (savings, credit, and insurance). provide an entry point for IBDRFI initiatives. The A few initiatives have been launched by Climate Change Agriculture and Food Security pro- private insurers together with mobile money gram, the International Research Institute for Climate providers although mobile money penetration and Society and others are working on the Enhanc- remains low in rural areas. Mobile phone penetra- ing National Climate Services initiative. This involves tion in Mali was over 60 percent (about 11 million supporting Meteo Mali and AGHRYMET, the regional people) in 2016, but the use of mobile money is still center of excellence, to overcome data gaps and pro- mainly limited to urban areas. The penetration rate in vide high-quality climate information.33 Action Con- rural areas is thought to be around 30 percent.31 The tre la Faim, a non-governmental organization (NGO), telecommunication sector in Mali is currently domi- has established a pastoral surveillance system in the nated by Orange and Malitel. Though both operators region to monitor pasture biomass through satellite cover most of the country, they have a limited pres- data and surface water resources via ground surveys. ence in the northern regions of Tombouctou, Gao While several national and regional actors have the and Kidal due to security issues. Both Malitel and capacity to handle agro-meteorological and remote- Orange offer distribution options for an IBDRFI prod- sensing data, their experience in using these services uct. Malitel enabled humanitarian cash transfers dur- for insurance purposes is very limited. ing the 2012 security crisis, while Orange partnered Microfinance providers, NGOs and interna- with insurance providers. Among the initiatives is Sini tional organizations have shown a keen interest Tonon, a mobile savings product, and Tin Nogoya, a in supporting bundled IBDRFI products in Mali. micro insurance product offered in partnership with Access to credit remains a challenge for farmers, NSIA Assurances au Mali. Tin Nogoya provides life, with only one of Mali’s main banks providing financial disability and maternal health cover, it is targeted at services related to agricultural development. Micro- women, who tend to be marginalized in the insur- finance institutions (MFIs) play a significant role at the ance market in Mali.32 Mali has some experience of agricultural 30 Demirgüç-Kunt, A., L. Klapper, D. Singer, and S. Ansar insurance, but most products aim at crop insur- (2022). The Global Findex Database 2021: Financial ance while agro-meteorological capacity is still Inclusion, Digital Payments, and Resilience in the Age of limited. A few international development organiza- COVID-19. Washington, D.C.: World Bank. tions have supported the launch of agricultural insur- 31 GSMA (2017). The Potential of Mobile for Rural Energy Access in Mali. ance schemes in Mali. Inclusive Guarantee launched 32 AXCO (2020). Sahel Crop Insurance (Assurance Récolte Sahel), 33 Hansen, J., A. Rose, and D. Dinh (2017). World Met Day: aimed at establishing index-based insurance products Partnering with National Meteorological Services to Sup- that cover drought risks. NISA Assurances previously port Farmers in Africa. 28 2023 MALI ECONOMIC UPDATE smallholder level. There were about 30 active MFIs in initiatives while pastoral regions need major invest- 2017, serving a client base of 1.1 million people, many ment to stimulate demand for insurance and its use of whom live in remote rural areas. SNV, the Dutch in resilience building. Limited satellite data handling development agency, plays a significant role in gen- capacity and the absence of a national electronic reg- erating awareness among agro-pastoralists and pas- istration system to support beneficiary targeting and toralists, and in improving access to financial institu- product distribution are other relevant gaps that need tions. Such organizations would be able to offer an to be addressed. entry point for an IBDRFI initiative in Mali. Chronic episodes of insecurity in some pas- The IBDRFI scheme may be adjusted according to toral regions can be an operational risk factor for the needs and characteristics of the pastoralists IBDRFI programs in Mali and the wider Sahel. as well as the objectives of the scheme. Increasing insecurity and conflict in certain parts of the country pose a challenge for investment and to Given the high cost of climate shocks, coun- attract the private sector’s involvement. This needs tries with limited fiscal capacity such as Mali are to be considered when planning a product’s launch. unlikely to be able to mitigate against shocks Early implementation of IBDRFI is recommended in through government intervention alone. As a more secure areas to allow programs to be custom- result, it is essential for Mali to crowd in the domes- ized for the local context before expansion to other tic and international private (insurance) sector to man- parts of the country. However, so far the security situa- age some of the financial implications of shocks that tion has not significantly deterred private-sector orga- the country experiences. Different options could be nizations from launching insurance services. explored to develop a program of IBDRFI for pasto- IBLI schemes can play a significant role in ralists in Mali, which aim to achieve different objec- conflict management and reduction. By using IBLI, tives. Although the different approaches would be pastoralists’ ability to mitigate shocks can avoid the use based on the same underlying principles and prod- of conflict-prone strategies and can lead to increased ucts, they would require different public policies and use and strengthening of informal networks (such as investments (in the enabling environment and pre- co-operatives, and savings and credit schemes). Infor- mium financing). mal risk-sharing practices should not be discouraged, The illustrative scenarios below provide two as their absence could heighten the risk of conflict. options, differentiated by the wealth of targeted Inclusion is key here too, as certain groups being pastoralists. Options A supports relatively wealth- perceived as being aided over others could lead to ier pastoralists, who may be able to contribute to the grievances and fuel conflict. While IBLI schemes are costs of insurance, thus stimulating investment from designed to maintain livestock productivity, increases insurers and pastoralists. Option B supports the most in herd sizes and their impact on resources such as vulnerable pastoralists as a form of social protection land and water could also increase the risk of conflict. through a large scale publicly funded scheme. These Overall, the operational assessment shows two scenarios draw from the experiences of Kenya that implementation in pastoral regions might and Ethiopia, where ongoing initiatives have demon- be challenging due to the lack of infrastructure strated positive impacts on pastoralists’ welfare and and the prevailing security situation. The regula- income, private sector development, and manage- tory environment, private sector experience in agricul- ment of government budgets and contingent liabil- tural index insurance, good telecommunication, and ities. The two options should not be considered as digital financial service networks, and the strong pres- mutually exclusive alternatives, but rather could they ence of NGOs, international organizations, and pas- be pursued in parallel to meet different objectives. toral associations are all positive factors for IBDRFI Option A: a micro-level retail scheme to stim- operational implementation. However, the overall insti- ulate demand for the insurance product whilst tutional capacity is too weak to support large IBDRFI incentivizing insurance providers to enter the Strengthening Financial Resilience OF PASTORALISTS to Drought 29 market and invest. Individual pastoralists would be the Stakeholder engagement and policy support policyholders, who could benefit from a subsidy (e.g., 1. Establish a national dialogue or policy round- 50 percent of the premium value for a limited number of table discussions on IBDRFI implementation animals) to encourage take-up. The level of public sec- options tor support for subsidies would be set to balance bud- • Defining the policy priorities and objectives of get availability with affordability and demand, aiming to IBDRFI and evaluating all options should be increase the size of the market to achieve economies the primary objective of this dialogue. The di- of scale. Whilst the private sector would be expected to alogue should be anchored to the 2021–25 invest in the market, additional public support would be National Plan for Drought and involve multi- required such as in data and financial education. These ple ministries (i.e., Livestock and Fisheries, In- costs should be weighed against the range of benefits formation and Digital Economy, and Econo- outlined above such as protecting pastoral households my and Trade), insurers, regulators, pastoral from sliding into poverty from drought-induced livestock associations, international organizations, and losses, improving access to inputs and credit, and stim- development institutions with an interest and ulating private investments in the value chain to improve experience in implementing IBDRFI. livestock production and marketing. • A technical working group could be estab- Option B: a macro-level social protection lished as a complementary measure to ad- program to protect the most vulnerable pasto- dress the technical aspects of the initiative to ral households and complement humanitarian inform the decision-making process. responses to protect pastoralists’ assets and live- 2. The government should invest in capacity lihoods during the early stages of droughts. As a building and awareness for insurance actors macro-level program, the insured policyholder would and pastoralists be the government department or agency on behalf • Continuous capacity building and awareness of the pre-selected pastoralists that own a small num- raising should be carried out to improve insur- ber of livestock but are unable to pay premiums. ance companies’ knowledge, understanding, A high level of public sector support is required for and experience of crop and livestock index full or high subsidies, awareness creation, and par- insurance. This should involve both the pri- allel investments to crowd in private sector invest- vate and public sector as well as institutions ment. Targeting and registering pastoralists are there- involved in providing agro-meteorological, ex- fore critical steps—working with government agencies tension, and emergency response services. and distributors, such as local authorities, pastoralists As IBDRFI would be a new solution, public groups, and community and pastoral leaders to iden- and private sector capacity building should tify potential beneficiaries. Again, such costs would cover the mechanics of insurance, roles and be weighed against benefits such as increasing gov- responsibilities, product design, and pricing. ernment budget stability, avoiding negative coping • To improve knowledge among farmers and mechanisms, and reducing the overall cost of losses pastoralists, existing organizations working and associated social and economic impacts through in pastoral areas can support awareness cre- early intervention to reduce livestock deaths. ation and financial literacy for micro and me- so-level or social protection products. This should include farmer and pastoralist orga- Policy options and next steps nizations, extension workers as well as insur- ers, banks, and microfinance institutions. En- While several lessons learned from programs in gagement with these organizations should other Sub-Saharan African countries could be useful occur as early as possible to understand pas- to develop an IBDRFI scheme, the assessment pro- toralists’ needs and expectations regarding a posed specific follow-up actions for Mali. livestock insurance product. 30 2023 MALI ECONOMIC UPDATE Priority pre-operational activities and imals. The evidence in this area is limited but considerations growing. Results from a study in the Horn of 1. Improve data collection in collaboration with Africa region found that herds protected un- the government and NGOs der IBLI often decrease in size due to better • There is limited data on drought-induced loss- connections to markets. es suffered by the pastoral community and • Any initiative in Mali should learn from the the related impact on livelihoods. This could growing body of global evidence, while en- be rectified by requesting updated informa- gaging with local experts, to ensure that the tion on the impact of drought on the pasto- IBDRFI program includes appropriate incen- ral community from government entities and tives to limit potential overgrazing and en- NGOs or by conducting in-depth engage- courage sustainable rangeland management ments with various stakeholders in the field. practices. Design considerations could in- • To improve data handling capacity among clude clear targeting and design of premium key actors, institutions such as AGHRYMET, subsidies to reduce the incentives to increase Action Contre la Faim, and African Risk Ca- herd sizes as well as linkages with education, pacity should be engaged to build local ca- investment in value chains and linking pasto- pacity, particularly on the collection and man- ralists to markets. agement of livestock-related data. 4. Consider and identify conflict mitigation ap- 2. Ensure that product design takes the local proaches for all IBDRFI options pastoral context into account • The insecurity situation in some pastoral and • Product development options should be agro-pastoral areas can be a material risk factor adapted to pastoral production systems in in implementing IBDRFI programs. This should central Mali that are dominated by agro-pasto- be considered during the planning and prod- ralism. This may entail a comprehensive char- uct design phases by identifying conflict miti- acterization of pastoral land use and mobility gation mechanisms to improve social cohesion patterns, especially in regions that need to be between farmers and nomadic pastoralists. reviewed further before launching a product. • To support product design, detailed engage- • Stakeholder engagements can provide a ments should be carried out with stakehold- better understanding of the feasibility of IBLI ers with prior knowledge of inter and intra- schemes in regions subject to review. community dynamics. Even though IBDRFI 3 Design financial protection considering the schemes have been implemented in insecure possible environmental impact parts of East Africa, the implementation stage • Reduced grazing pastures and increased herd should carefully consider security-related con- sizes can result in over-grazing, which could straints in the demand, supply, and scaleup of perpetuate the ongoing risk of desertification the product. and increase pressure on already scarce re- 5. Prioritize affordable access and broad distri- sources. In turn, this may increase the risk of bution for successful uptake conflict breaking out over land—particularly for • Premium financing for micro-level IBDRFI Mali, where natural capital is in decline. IBDRFI as well as meso- and macro-level schemes could further exacerbate the risk of conflict by should be explored to make policies afford- expanding herd sizes (as pressure on existing able while ensuring sustainability in the long resources increases). term and providing constructive incentives • As there is a reduced need to hold excess and signals to inform risk management de- stocks to manage risks, IBDRFI may lead, al- cisions and investments. Distribution should ternatively, to pastoralists consolidating small- consider bundling IBDRFI with existing servic- er herds of healthier and more productive an- es, such as digital financial services. Strengthening Financial Resilience OF PASTORALISTS to Drought 31 • Financial inclusion: Improved mobile network lection of certain agricultural practices, invest- coverage and available use cases make mo- ment in inputs and markets, pastoralist educa- bile money a viable digital distribution option, tion, and financial risk management tools. which can support access, transparency, and • A national disaster risk financing strategy timeliness of payouts. Mobile money can en- could be developed to manage the broad set able access to other formal financial services of risks that Mali is facing. The strategy would (such as savings and credit), given pastoral- aim to quantify the risks and prioritize the most ists’ low use of banks and microfinance insti- important ones. Correspondingly, it would tutions. identify the types of risk financing instruments 6. Make insurance a component of broader strat- and distribution mechanisms that could be de- egies and toolkits for agricultural risk man- veloped and adopted to increase the resilience agement, financial inclusion, and disaster risk of households, businesses, and the govern- financing ment to shocks and disasters. • IBDRFI product development should not be 7. Review government expenditure on emer- pursued in isolation. Instead, it should be part gency responses to inform IBDRFI cost-bene- of a comprehensive approach to risk manage- fit analyses ment and adaptation. Insurance schemes can • This is a necessary step to inform the deci- be a critical tool to improve financial inclusion sion-making process to select potential IB- as well as investment, financial security, and DRFI options for a detailed review, which resilience. IBDRFI schemes should aim to im- should include a cost-benefit analysis. The prove access to finance for resilience by pro- analysis should assess the government’s role moting insurance distribution through digital in providing a subsidy or complementary in- financial services, regional risk pools, or mi- vestments in micro-, meso- and macro-level crofinance institutions. schemes and their harmonization with exist- • IBDRFI should deal with residual risks, which ing drought risk management efforts. cannot be mitigated through other means, or • The review should consider alternative subsi- should directly finance early intervention in the dy options and evaluate the trade-offs from a face of risks. A range of risk management tools cost-benefit perspective, including long-term should be used to manage different layers of financial sustainability and governance as- risks. These can include the avoidance or se- pects. 32 2023 MALI ECONOMIC UPDATE 3 ANNEX Selected economic indicators for Mali, 2019–2025 2019 2020 2021 2022 2023 2024 2025 Estimates Projections a National income and prices – annual percentage change, unless indicated otherwise Real GDP 4.8 –1.2 3.1 1.8 4.0 4.0 5.0 Real GDP per capita 1.7 –4.1 0.1 –1.3 0.9 0.9 1.8 Agriculture 4.1 –4.8 2.2 1.7 5.0 5.0 5.0 Industry 3.7 –0.1 0.7 3.0 6.0 4.0 4.0 Services 5.2 1.4 4.9 1.5 2.4 3.3 5.4 Private Consumption 3.8 1.9 5.0 2.0 3.0 3.0 4.4 Government Consumption 4.0 4.5 11.2 7.1 4.1 2.1 2.1 Gross Fixed Investment 6.3 –1.2 3.8 –10.4 7.4 9.1 7.8 Gross Fixed Investment – Private –0.6 –3.0 5.4 –4.3 5.6 11.9 11.9 Gross Fixed Investment – Public 10.0 0.6 2.2 –16.9 9.7 5.8 2.7 CPI (year-average) –2.9 0.5 3.9 9.7 5.0 2.5 2.0 CPI (EOP) –3.3 0.7 8.9 7.7 4.0 2..5 2.0 Money and credit – annual percentage change unless otherwise indicated Exchange Rate (to US$, average) 586 575 554 622 … … … Exchange Rate (to US$, EOP) 590 539 580 619 … … … REER –4.2 0.4 1.0 … … … … Broad money 9.0 22.2 9.9 7.5 8.1 8.2 7.1 Credit to economy 2.2 5.3 6.0 7.5 8.5 8.2 7.1 Credit to the government –36.6 70.3 63.2 10.8 8.0 4.8 2.1 (continued on next page) 33 (continued) 2019 2020 2021 2022 2023 2024 2025 Estimates Projections a Public finance and debt Total expenditure 23.1 26.1 27.1 24.6 25.6 26.2 24.4 Total revenue and grants 21.5 20.7 22.2 19.5 20.7 22.2 21.4 Overall balance (incl. grants) –1.7 –5.5 –5.0 –5.0 –4.9 –4.0 –3.0 Overall balance (excl. grants) –3.6 –6.6 –5.7 –5.3 –5.3 –5.4 –4.2 Primary Fiscal Balance –0.7 –4.2 –3.6 –3.5 –3.1 –2.0 –1.1 Total public debt 40.6 47.3 51.9 55.2 55.1 55.6 55.9 External public debt 26.5 29.8 29.2 28.5 25.6 25.3 25.5 Domestic public debt b 14.1 17.5 22.7 26.7 29.6 30.3 30.4 External Accounts Export Growth (%, yoy) 6.1 17.0 1.2 6.4 –0.1 –0.1 –0.1 Import Growth (%, yoy) 7.8 –3.2 22.2 6.7 4.6 4.6 4.6 Exports, Goods and Services 25.7 29.6 27.5 27.3 25.4 23.8 22.1 Imports, Goods and Services 38.0 36.3 40.5 40.4 39.4 38.7 37.6 CAD (incl. current transfer) –7.5 –2.3 –10.0 –7.0 –6.2 –5.5 –4.7 Net FDI (% change) 5.0 3.1 5.5 4.4 3.2 3.1 2.9 Terms of Trade (% change) 1.1 63.6 –13.4 –6.0 7.5 1.6 3.5 Population, Employment and Poverty Population, total (millions) 19.7 21.2 21.9 22.6 23.3 24.0 24.8 Unemployment Rate 7.2 12.5 12.5 12.5 12.5 12.5 12.5 Population Growth (annual %) 3.0 3.0 3.0 3.0 2.9 2.9 2.9 International poverty rate ($1.9 in 2011 PPP) c 15.7 17.6 175.9 19.1 19.6 19.5 18.8 Other memo items GDP nominal (CFAF billions) 10,125 10,053 10,635 11,371 12,180 12,989 13,960 GDP nominal (US$ billions) 17.3 17.5 19.2 20.5 21.9 23.4 25.2 Sources: Government of Mali, WEO, WDI, KNOMAD, IMF and World Bank Staff estimates and projections. Note: 1/ The macroeconomic projection has factored in downside risks from the war in Ukraine. 2/ Includes BCEAO statutory advances, government bonds, treasury bills, and other debts. From 2021 onwards includes SDR allocation in the amount of CFAF 142 billion (1.3 percent of GDP) on-lent from the BCEAO. 3/ Calculations based on 2018 EHCVM. Nowcast: 2019–2021. Forecasts are from 2023 to 2025. Projection using neutral distribution (2018). Note on Mali’s 2023 Budget Law challenging socioeconomic context with persistent insecurity. It is anchored to the This note provides an overview of the approved bud- country’s development strategy (CREDD 2019– get for 2023 as per the 2023 Budget Law (Loi des 2023) and the transitional government’s action Finances) with comparisons to the projections in the plan (PAGT) for 2022–2024. Spending priorities revised budget for 2022 as estimates for 2022 actual/ in the PAGT fall under four broad categories: executed budget figures are not yet available. Per- (i) improving security across the country; (ii) im- centage increases are all in nominal terms. plementing political and institutional reforms; (iii) organizing general elections; and (iv) pro- A. Context of budget adoption and key moting good governance and social cohesion. assumptions • The 2023 budget assumes a robust GDP • The 2023 budget is underpinned by the growth rate of 5.1 percent for 2023 (versus transitional government’s priorities in a WB projection of 4 percent) while assuming 34 2023 MALI ECONOMIC UPDATE BOX 3.1: MAIN TAKEAWAYS OF THE 2023 BUDGET LAW The 2023 Budget Law was adopted by the National Transitional Council on December 1, 2022; • Total revenue and expenditure are projected to increase by 9–11 percent in 2023 based on an expected economic recovery and series of tax measures. The fiscal deficit is projected to stabilize at an elevated level of 5 percent of GDP. • The 2023 budget increases significantly agriculture and education expenditure and allocates substantial resources to the electoral process. These are offset by lower security expenditures. • The composition of the budget raises concerns on its allocative efficiency. Total revenue (including grants) represents 18.6 percent of GDP in 2023. Nearly half will be spent on wages (8 percent of GDP), with the rest used to finance goods and services (4.2 percent of GDP) and debt service (1.6 percent of GDP), leaving little fiscal space for public investments (5.6 percent of GDP). • Gross financing needs are projected to increase due to the fiscal deficit and higher domestic debt amortization. As external financing sources decrease, the government looks to finance predominantly through more expensive domestic debt issuance on the regional market. that global inflationary pressures (oil and food cent of GDP in additional tax revenue. Moreover, prices) will ease in 2023, consistent with the tax expenditures, which were unusually high in IMF’s World Economic Outlook (January 2023 2022 at ~0.5 percent of GDP, should decline Update). The 2023 budget projects an annu- in 2023. The overall ambitious increase in tax al average inflation rate of 2.5 percent for 2023 revenue may be difficult to realize as some of (versus WB projection of 4 percent). The GDP the announced reforms are likely to be delayed. growth projection is a bit optimistic and depends Non-tax revenue are projected to increase by on the agriculture sector accelerating its recov- 17.0 percent in 2023 due to land revenue but re- ery in 2023. The inflation projection seems low mains limited at 0.1 percent of GDP. considering that security-linked supply bottle- • In contrast, grants are projected to decline necks are still significant. by 17.5 percent in 2023 to 0.7 percent of GDP (CFAF 83.9 billion) due to a retrench- B. Revenue and expenditure ment of donor support and the retirement of Total revenue including grants is projected to several donor-financed programs. increase by 10.9 percent to reach 18.6 percent of GDP (CFAF 2199.9 billion) in 2023. Public spending is projected to increase by 9.4 percent to reach 23.7 percent of GDP (CFAF • Tax revenue is expected to grow by 17.9 per- 2,895.9 billion) in 2023. cent to reach 15.5 percent of GDP (CFAF 1,897.1 billion) in 2023. The significant in- • The overall increase is driven by the wage crease is driven by the following: (i) the expect- bill, which is projected to increase by ed economic recovery with real GDP growth 8.3 percent to reach 8 percent of GDP projected at 5.1 percent in 2023; (ii) the intro- (CFAF 978.5 billion) in 2023. This is consis- duction of new excise taxes; (iii) the increase of tent with the harmonization of the salary grids excise rates on a few items; (iv) increased tax- agreed with the trade unions in 2021. Debt ser- ation of the informal sector; (v) the intensifica- vice is also set to accelerate by 14.2 percent in tion of digitalization efforts at the tax office; and 2023 to 1.6 percent of GDP—significantly above (vi) the taxation of electronic trade. The budget the pre-pandemic level of 0.9 percent of GDP in does not provide details on the expected reve- 2019—reflecting higher financing needs and a nue gains from each tax measure but collective- growing share of (relatively expensive) treasury ly they are expected to generate around 0.6 per- bonds in Mali’s debt portfolio. As a result, current Strengthening Financial Resilience OF PASTORALISTS to Drought 35 expenditure is projected to grow by 13.3 per- 2023 with a planned return to the WAEMU cent in 2023 to 17.2 percent of GDP in 2023. ceiling of 3 percent of GDP by 2025. The Meanwhile, capital expenditure, which has ex- budget highlights the government’s commit- perienced significant cuts over 2020–2022 (av- ment to the gradual fiscal adjustment agreed erage decline of 5.3 percent per year), is project- under the IMF 2019–2022 ECF program. ed to grow by 7.9 percent in 2023 to 5.6 percent • Gross financing needs are projected to in- of GDP; however, it remains below the pre-pan- crease by 10.3 percent to 12.1 percent of demic level of 6.5 percent of GDP in 2019. GDP (CFAF 1,486.6 billion) in 2023 due to • Capital expenditure is likely to be reduced higher amortization spending. Amortization should the revenue projections not materi- spending is set to accelerate in 2023, reaching alize. In a context of recurrent shocks, the gov- 6.4 percent of GDP, driven mainly by domestic ernment has introduced a fiscal shock absorb- debt amortization with the maturation of a sig- ing mechanism through a 20 percent retention nificant volume of treasury bonds. (0.3 percent of GDP in 2023) on all investment • To finance these needs, the budget proj- and transfer credit lines. ects an acceleration of debt issuance on • In preparation for the 2023–24 elections, the regional market, increasing from 9.6 per- the 2023 budget allocates significant re- cent of GDP (CFAF 1092.9 billion) in 2022 to sources to the electoral process (0.6 per- 11.1 percent of GDP (CFAF 1,358.8 billion) in cent of GDP or CFAF 79 billion). 2023. The growing use of domestic financing is • Education spending is projected to increase linked to the reduced access to external financ- significantly by 21.7 percent to 4.4 percent ing with project/program loans declining from of GDP (CFAF 541.4 billion) in 2023. Health 1.9 percent of GDP in 2022 to 0.7 percent of expenditures are projected to increase by only GDP in 2023. Projected WB financing for 2023 7.2 percent, remaining at 1.3 percent of GDP will be limited (0.2 percent of GDP), while no (CFAF 163.7 billion) in 2023. These increases IMF financing has been budgeted. are linked to the rising wage bill in both sectors, • Public debt is projected to remain stable at counteracting the retrenchment of some do- 55.8 percent of GDP. nor-financed projects in the two sectors. Agri- culture expenditure, including subsidies to farmers, are set to accelerate by 22.7 per- Microsimulation model to account for cent in 2023, consistent with the projected re- sectoral growth and food/non-food covery of agricultural output. inflation • Security spending is set to decline after years of increase. The sustained increase to military This note describes the methodology used to account spending, which began with the adoption of the for the heterogenous effects of growth and inflation military and security programming laws in 2016, on poverty projections using the latest household is projected to come to an end in 2023. The se- budget survey. For economic growth, the method- curity budget is set to decrease by 7.3 percent to ological framework decomposes the contributions to 5.4 percent of GDP (CFAF 656.9 billion) in 2023, household consumption of each worker in a house- which partly reflects the unusually high alloca- hold according to their sector of economic activity. It tion to the sector in 2021–2022 due to the ac- then uses nominal per capita sectoral growth rates quisition of new military equipment. to estimate a household-specific nominal growth rate of per capita consumption. Regarding inflation, the C. Fiscal deficit, gross financing and public framework separately considers food and non-food debt CPI inflation with households’ shares of food and non- • The fiscal deficit is projected to stabilize food consumption to determine a household-specific at an elevated level of 5 percent of GDP in measure of inflation. 36 2023 MALI ECONOMIC UPDATE FIGURE 3.1   Key Fiscal Indicators in the Revised Finance Law 2022 and the Finance Law 2023 (percent of GDP) 30 25 20 15 10 5 0 –5 –10 Wages and Compensation Total Revenue and Grants Tax Revenue Non-tax Revenue Grants Other Revenue Total Expenditure Current Expenditure Goods and Services Capital Expenditure Overall Balance Primary Balance Interest Payment 2022 2023 TABLE 3.1   Key Fiscal Indicators in the Revised Budget Law 2022 and the Budget Law of 2023 Revised Budget 2022(a) Budget Law 2023 % GDP % GDP Diff (% GDP) Nominal GDP (CFAF billions) Total revenue and grants 17.8 18.6 0.8 Tax revenue 14.1 15.6 1.5 Non-tax revenue 0.1 0.1 0.0 Grants 0.9 0.7 –0.2 Other revenue 2.7 1.7 –1.0 Expenditure 23.2 23.7 0.5 Current Expenditure 16.3 17.2 0.9 Wages and compensation 7.9 8.0 0.1 Goods and services 4.1 4.2 0.1 Interest payments 1.5 1.6 0.1 Capital expenditures 5.3 5.6 0.3 Externally financed 2.2 2.3 0.1 Domestically financed 3.1 3.4 0.3 Others 1.8 0.9 –0.9 Overall fiscal balance (incl. grants) –5.3 –5.0 0.2 Primary balance –3.8 –3.4 0.4 Public debt 55.9 55.8 0.1 Domestic public debt 29.3 29.0 –0.3 External public debt 26.6 26.8 0.2 Source: 2023 Budget Law and staff calculation. Note: (a) These are projections in the revised law. The actual budget execution levels for 2022 are not yet available. Strengthening Financial Resilience OF PASTORALISTS to Drought 37 TABLE 3.2   Functional Composition of Total Budgeted Spending (%) Sector Revised Budget 2022(a) Budget Law 2023 Public administration 29.7 28.2 Defense 16.1 14.7 Public safety and order 10.7 7.9 Economic affairs (includes agriculture) 14.5 17.4 Environment 1.6 1.4 Public housing and collective equipment 1.3 2.1 Health 5.8 5.7 Culture and entertainment 0.9 0.8 Education 16.8 18.7 Social protection 2.7 3.1 Source: 2023 Budget Law. Household per capita nominal consumption projection nal per capita consumption of each household in t is n given by: ch,t = ch,t * (1+ gh ). ´ Projecting per capita consumption (in nominal terms) s can be carried out in seven steps. Ch, Th , Yh , and L Deflating the projected nominal N Yh be household-level consumption, transfers sent, consumption labor incomes, and non-labor incomes, respectively. Separately, to consider food and non-food inflation, L First, household total labor income, Yh , is deduced the methodology deflates each household projected s L from its assumed budget constraint: Ch + Th = Yh + per capita nominal consumption by a household-spe- N L Yh . Second, the following Mincer equation log(Yh ) = cific inflation rate. This household-level inflation rate Xh b h + e h is estimated on the sample of average work- depends on the household’s food and non-food con- L ers within each household. Yh denotes the house- sumption shares. Let p f and p nf be the food and non- hold labor income per worker, Xh is a vector of covari- ates averaged across workers (age, education, etc.), food CPI inflation between t and t . The household- level inflation rate is then given by: ´ and e h is an error term. Third, the estimated model (1+ π f ) (1+ π n f ) is used to predict individual labor incomes for every- πh = –1 (1+ π ) Sh + (1+ π f ) (1– Sh ) nf f f one in the survey. Fourth, workers are classified by f their primary employment sector to construct total where Sh denotes the share of food consumption. sectoral incomes for each household. Fifth, the share Hence, the projected welfare aggregate, that is, the of each income component is estimated as the ratio deflated projected per capita consumption for every ´ A I S of component income to total income. Let Sh , Sh , Sh , household in t is: N and Sh , be the estimated share of incomes from agri- /1+ π . n ch,t culture, industry, services, and non-labor for house- ch,t = h hold h, respectively. Let gA , gI, gS , and gN (a A , a I, a S , and a N) be the corresponding nominal per cap- Projecting poverty ita sectoral growth rates between t and t (pass- through rates). Sixth, the per capita consumption ´ Finally, poverty projections can be derived based on the projected welfare aggregate and the poverty line growth rates for each household, gh, is equal to the for the latest available survey. The framework uses weighted average of component growth rates, that is realized (projected) macroeconomic growth rates and gh = Sk ∈{A,I,S,N} Sh * a * g . Finally, the projected nomi- k k k inflation rates for nowcasting (forecasting) poverty in 38 2023 MALI ECONOMIC UPDATE TABLE 3.3   Climate Scenarios Modeled Climate Scenario Description SSP3–7.0 Average - Pessimistic scenario Ensemble average of SSP3–7.0 GCMs -> Higher temperature increases and larger precipitation changes compared to Intermediate and Optimistic scenarios SSP2–4.5 Average - Intermediate scenario Ensemble average of SSP2–4.5 GCMs -> Higher temperature increases and larger precipitation changes compared to Optimistic scenario but lower than Pessimistic scenario SSP1–1.9 Average – Optimistic scenario Ensemble average of SSP1–1.9 GCMs -> The lowest temperature increases among the scenarios and smaller precipitation changes than Intermediate and Pessimistic scenarios Dry scenario 10th percentile of mean precipitation change across SSP3–7.0 and SSP5–8.5 GCMs -> The driest among all the scenarios (i.e., smallest (or decrease) precipitation changes) Wet scenario 90th percentile of mean precipitation change across SSP3–7.0 and SSP5–8.5 GCMs -> The wettest among all the scenarios (i.e., largest (increase) precipitation changes) Hot scenario 90th percentile of mean temperature change across SSP3–7.0 and SSP5–8.5 GCMs -> The highest temperature increases among all the scenarios 2022 (in 2023–2025). To the extent that nominal sec- 2–4.5, 3–7.0, and 5–8.5. For each GCM-SSP combi- toral growth of household income is lower than the nation, CCKP provided a modeled history from 1995 household-specific inflation, the standard of living of to 2014 (the baseline) and projections from 2015 to the household will be in jeopardy, even if there is over- 2100, for monthly mean temperature and precipita- all economic growth. tion. CCKP also rectified each projection to a com- mon 1x1 degree grid for the globe. The CCDR may refer to two generations of CMIP due to data availabil- Modeling of climate change impacts ity constraints. While long-term GHG emissions in the RCP8.5 are considered overly pessimistic, the CMIP5 Climate Scenario Modeling Details climate change scenarios with RCP8.5 provide a use- The emission scenarios and climate models were pro- ful (and not implausible) worst-case climate change vided by the World Bank’s Climate Change Knowl- scenario, which would be consistent with continued edge Portal (CCKP) for 29 General Circulation Mod- GHG emissions and high climate change sensitivity. It els (GCMs) from the Coupled Model Intercomparison is worth noting that the scenarios are not necessarily Project 6 (CMIP6) suite of IPCC model outputs. On particularly “dry,” “wet” or “hot,” but rather represent the CCKP, each GCM has up to five combinations scenarios that are among the dryer, wetter, or hotter of Shared Socioeconomic Pathway (SSP) and Rep- of the ensemble of scenarios. These scenarios were resentative Concentration Pathway (RCP) emissions selected to capture extremes, and by extension the scenario runs. These include SSP 1-RCP 1.9, 1–2.6, range of climate impacts. Strengthening Financial Resilience OF PASTORALISTS to Drought 39 BOX 3.2: IMPACT CHANNEL AND ADAPTATION MODELING DETAILS 1. Rainfed crop yields Impact Modelling: The effects of water availability and temperature changes for each of the GCM-SSP combinations are analyzed using crop yield models and combined for 6–8 representative crops (including sorghum, millet, maize, cowpeas, cotton, groundnuts) for each country that are selected based on their relevance in terms of harvested area, production, and export value. Crop-specific temperature thresholds are calibrated to the climatic conditions of each country. This means that when temperatures exceed those thresholds, yields fall based on a damage function. The resulting shocks to crop yield by crops are aggregated to a single shock to agriculture revenues based on the share of the total value of agricultural production that each crop represents. The spatial disaggregation of the crop production analysis corresponds to ½ degree x ½ degree grid cells, which is the resolution of the climate data available. The baseline annual crop yield is calculated by putting into the crop yield model the average historical temperature and precipitation to calculate the annual crop yield for each of the crops. The temperature and precipitation for each year for each of 6 climate scenarios are then used in the crop yield model to calculate the annual crop yield for each of the crops. The difference in total crop value from the baseline is the shock, expressed in percentage terms. Adaptation Intervention Modellinga: Expanded irrigation: (1) rehabilitation of irrigation infrastructure for cash crops; and (2) construction of new shallow groundwater-based irrigation for smallholders for cash crops and food crops. • Benefits: Increase water availability for rainfed crops that would have been reduced as a result of changes in precipitation. • Costs: US$8,200 per ha for 243,000 ha of rehabilitation, and US$4,700 for 1.8M ha of shallow groundwater-based smallholder irrigation in total for G5 Sahel. 2. Heat stress and labor productivity Impact Modelling: Impacts are based on a method/model that quantifies the percentage of a typical working hour that a person can work based on wet bulb globe temperatures (WBGT), which measures heat stress from temperature and humidity. The impacts intensify for labor types that are outdoors and with more intense physical work. Workers are split into indoors and outdoors and it is assumed that those who work indoors are not affected by heat. This likely underestimates the impacts of heat stress as some indoor workers—especially those not in temperature-controlled environments—may be affected. The baseline annual labor productivity is calculated by putting into the WBGT model the average historical temperature and precipitation to calculate the annual labor productivity for each of the three sectors. The temperature for each year for each of 6 climate scenarios are then used in the model to calculate labor productivity. The difference in labor productivity from the baseline is the shock, expressed in percentage terms. This approach is consistent with the recently released study by Purdue University: Saeed, Wajiha, Thomas Hertel, Qinqin Kong, and Matthew Huber. 2022. “Heat Stress in Human Labor and Poverty: The Case of West Africa.” 3. Heat-related human health shocks Impact Modelling: The effects are estimated using a statistical model that relates temperature increases to increased morbidity due to vector- borne diseases (malaria, dengue, diarrhea, and respiratory and cardiovascular heat-related diseases). The resulting output corresponds to country- scale annual impacts on total labor productivity for each climate scenario. Changes in morbidity are calculated using country-specific years-of-life lost data gathered from the Institute of Health Metrics and Evaluation global health dataset. The baseline annual labor productivity for the whole economy calculated by using the average historical temperature and precipitation to calculate the annual labor productivity for the whole economy. The temperature for each year for each of 6 climate scenarios are then used in the model to calculate labor productivity. The difference in labor productivity from the baseline is the shock, expressed in percentage terms. The approach follows the method outlined in: Roson, Roberto, and Martina Sartori. 2016. “Estimation of Climate Change Damage Functions for 140 Regions in the GTAP 9 Database.” Journal of Global Economic Analysis 1 (2): 38. 4. Livestock yields Impact Modelling: The effects under each climate scenario are analyzed using a grass yield model to impact feed availability, which affects the main ruminants (cattle, goats, and sheep); and animal-specific temperature-humidity thresholds to impact the productivity of ruminants, chicken, and swine. The effect on feed availability introduces a great deal of variability in this shock—livestock productivity is low in the baseline, so has considerable room to increase during wetter years when pasture productivity is high. The resulting shocks to livestock yield by species are aggregated to a single shock to agriculture revenues based on the share of the total value of livestock production that each species represents. The spatial disaggregation of the analysis corresponds to ½ degree x ½ degree grid cells, which is the resolution of the climate data available. (continued on next page) 40 2023 MALI ECONOMIC UPDATE BOX 3.2: IMPACT CHANNEL AND ADAPTATION MODELING DETAILS RAINFED CROP YIELDS (continued) The baseline annual livestock yield is calculated by putting into the livestock yield model the average historical temperature and precipitation to calculate the annual livestock yield for each of the animals. The temperature and precipitation for each year for each of 6 climate scenarios are then used in the livestock yield model to calculate the annual livestock yield for each of the animals. The difference in total livestock revenue value from the baseline is the shock, expressed in percentage terms. Adaptation Intervention Modellinga: Two livestock feed measures: (i) purchasing crop residues from in-country crop production to use as feed; and (2) investment in establishing fodder banks. • Benefits: To partially compensate for the reduced feed from pastures as a result of changes in temperature and precipitation. Annex Figure 1–13 shows the livestock yield shocks with adaptation. • Costs: US$48–70 per ton of residue (depending on residue mix by country) and US$10 per ton for fodder banks. Quantity varies according to scenario. 5. Inland flooding Impact Modelling: The analysis relies on projected changes in the return interval of precipitation events from the CCKP between current conditions and future projections, which are translated to runoff using a flooding model. CCKP provided gridded changes in precipitation recurrence intervals for four periods (2010–2039, 2020–2049, 2036–2065, and 2071–2100) and under two emissions scenarios in the CMIP5 climate model ensemble: RCP4.5 and RCP8.5. The two sets of changes from CCKP are developed from the full ensemble of GCMs within each emissions scenario, so the flooding results reflect the broad trend across climate models at each emissions level. The methodology considers shocks to three types of assets: built-up capital (i.e., any hard piece of infrastructures such as roads, bridges, and buildings), agricultural capital and agricultural land. The approach to generate these shocks distributes capital in two stages—first using 9-km gridded GDP data, and then to a finer scale using 100-meter gridded land cover data. Although these finer scale land cover data allowed us to identify capital within the floodplain, those data do not provide the productivity of that capital (i.e., whether the grid cell includes a residential home or factory). Because the flood plain is likely to contain lower productivity capital, we dampen the shocks by 50 percent as inputs to CC-MFMod. This factor produces a conservative estimate of inland flooding impacts. The baseline flooding impacts use baseline recurrence intervals to calculate damages to capital and agricultural land. The recurrence interval changes (i.e., events become more/less frequent) from CCKP for each period and under each of the two RCPs are then used in the model to calculate flood impacts. The difference in flood impacts from the baseline is the shock, expressed in percentage terms. 6. Roads and bridges Impact Modelling: The effects under each climate scenario are analyzed using the Infrastructure Planning Support System (IPSS), also used in the World Bank study Enhancing the Climate Resilience of Africa’s Infrastructure. This model analyzes impacts to paved, gravel, and dirt roads; culverts; and bridges, based on stressor-response functions that relate temperature and precipitation changes to repair and reconstruction costs, and traffic delays resulting from road and bridge disruption. This channel assumes that no proactive, anticipatory measures are taken to protect the roads and bridges network; it is assumed that the additional maintenance is not done so that the impact translates into a reduction in the capital stock of roads and bridges which then affects economic output. A factor of 0.5 is used to translate maintenance costs to reduction in capital stock to recognize that in the absence of maintenance, the infrastructure may still be partially usable. This factor produces a conservative estimate of damages. Adaptation Intervention Modellinga: Proactive adaptation requiring investments to make roads and bridges network climate resilient. Proactive measures vary depending on the road surface and stressor. • Benefits: Roads and bridges will be less damaged by changes in temperature, precipitation, and flooding events. This will reduce the losses in capital stock and labor productivity from delays and lower future O&M costs. • Costs: For roads, new and rehabilitated construction costs range from US$10,000 to US$818,115 per km, and annual routine maintenance range from US$750 to US$5,698 per km. For bridges, rip rap deployment is US$6,500 per pier lane and concrete strengthening is US$323 per m2. Source: G5 Sahel CCDR Annex. a Choice of Adaptation Interventions: The three interventions were selected on the basis of high potential benefits for the G5 Sahel region and feasibility to model. The analysis is not meant to be comprehensive or a prioritization of adaptation measures, as not all adaptation measures can be modeled because of the nature of the action and the lack of data on the investment costs, benefits, and co-benefits. For the heat stress and labor productivity channel, structural transformation—shifting from agriculture (predominantly outdoors work) to industry and service sectors—is a form of adaptation. The impact of structural transformation in reducing economic losses can be seen by the lower (as a percentage of baseline) GDP losses in the higher-growth scenarios. Strengthening Financial Resilience OF PASTORALISTS to Drought 41 Mali Estimates of Economic Losses by Low, Medium and High Baseline Growth Scenario FIGURE 3.2    Impact on Annual GDP of Combined Effects of Climate Change Shocks from Six Impact Channels a. No Adaption, WET and OPTIMISTIC Climate Scenarios b. No Adaption, DRY and PESSIMISTIC Climate Scenarios 6 6 6 6 4 4 4 4 2 2 2 2 0 0 0 0 –2 –2 –2 –2 % GDP % GDP % GDP % GDP –4 –2.2 –2.2 –2.1 –4 –4 –2.2 –2.3 –2.2 –4 –3.4 –3.5 –3.6 –6 –6 –6 –6 –8 –8 –8 –8 –5.9 –6.4 –6.7 –7.1 –7.0 –6.7 –10 –10 –10 –10 –12 –12 –12 –10.2 –12 –11.0 –10.7 –14 –14 –14 –14 Low Medium High Low Medium High Low Medium High Low Medium High Low Medium High Low Medium High 2030 2040 2050 2030 2040 2050 Rainfed crops yield Livestock yield Labor productivity (Heat stress) Labor productivity (Health impacts) Flooding Roads and Bridges Total GDP Impact c. Partial Adaption, WET and OPTIMISTIC Climate Scenarios d. Partial Adaption, DRY and PESSIMISTIC Scenarios 8 8 8 8 0.8 6 6 6 6 0.7 0.3 0.0 4 4 4 4 0.4 0.4 2 0.5 2 2 2 0 0 0 0 –2 –2 –2 –2 % GDP % GDP % GDP % GDP –4 –4 –4 –0.4 –0.5 –0.5 –4 –6 –0.1 –0.8 –6 –6 –3.3 –3.6 –3.6 –6 –8 –8 –8 –8 –10 –10 –10 –6.2 –6.7 –6.7 –10 –12 –12 –12 –12 –14 –14 –14 –14 Low Medium High Low Medium High Low Medium High Low Medium High Low Medium High Low Medium High 2030 2040 2050 2030 2040 2050 Rainfed crops yield Livestock yield Labor productivity (Heat stress) Labor productivity (Health impacts) Flooding Roads and Bridges Total GDP Impact 42 2023 MALI ECONOMIC UPDATE REFERENCES AXCO (2020). Country Information Mali. https://​ GSMA (2017). The Potential of Mobile for Rural Energy www.axcoinfo.com/regions/middle-east-africa​ Access in Mali. https://www.gsma.com/mobile​ /mali/. fordevelopment/wp-content/uploads/2017/04​ Centre for Research on the Epidemiology of Disas- /Mobile-for-Development-Utilities-The-potential​ ters (2022). 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